Cellect Biotechnology Ltd. Annual Report 2016

Plain-text annual report

20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited right20F 1 v462334_20f.htm FORM 20FAs filed with the Securities and Exchange Commission on March 23, 2017UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 20FANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Commission File No.: 00137846CELLECT BIOTECHNOLOGY LTD.(Exact name of registrant as specified in its charter)Translation of registrant’s name into English: Not applicableState of Israel23 Hata’as StreetKfar Saba, Israel 44425(+972) (9) 974 1444 (Jurisdiction of incorporation or organization) (Address of principal executive offices)Dr. Shai YarkoniChief Executive Officer(+972) (9) 974 1444Shai@cellectbio.com23 Hata’as StreetKfar Saba, Israel 44425(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class to be registeredName of each exchange on which each class is to beregisteredAmerican Depositary Shares, each representing twenty (20) Ordinary Shares, nopar value per shareThe Nasdaq Stock Market LLCWarrants to purchase American Depositary SharesThe Nasdaq Stock Market LLCOrdinary Shares, no par value per share*N/A* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and ExchangeCommission.Securities registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneNumber of outstanding shares of each of the issuer’s classes of capital or common stock as of March 20, 2017: 107,583,485 Ordinary Shares.Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ¨ No xIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct of 1934.Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months.Yes ¨ No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.Large accelerated filer ¨ Accelerated filer ¨ Nonaccelerated filer xIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.U.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board xOther ¨If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.¨ Item 17 ¨ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company.Yes ¨ No xTABLE OF CONTENTSPageINTRODUCTION1CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS1PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2A.Selected Financial Data2B.Capitalization and Indebtedness4C.Reasons for the Offer and Use of Proceeds4D.Risk Factors4ITEM 4.INFORMATION ON THE COMPANY26A.History and Development of the Company26B.Business Overview28C.Organizational Structure54D.Property, Plants and Equipment54ITEM 4A.UNRESOLVED STAFF COMMENTS54ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS54A.Operating Results54B.Liquidity and Capital Resources59C.Research and Development, Patents and Licenses60D.Trend Information61E.OffBalance Sheet Arrangements61F.Tabular Disclosure of Contractual Obligations61ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES61A.Directors and Senior Management61B.Compensation64C.Board Practices69D.Employees82E.Share Ownership82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83A.Major Shareholders83B.Related Party Transactions85C.Interests of Experts and Counsel86ITEM 8.FINANCIAL INFORMATION86A.Consolidated Statements and Other Financial Information86B.Significant Changes87ITEM 9.THE OFFER AND LISTING87A.Offer and Listing Details87B.Plan of Distribution89C.Markets89D.Selling Shareholders89E.Dilution89F.Expenses of the Issue89ITEM 10.ADDITIONAL INFORMATION89A.Share Capital89B.Articles of Association89C.Material Contracts93D.Exchange Controls94E.Taxation94F.Dividends and Paying Agents102G.Statement by Experts102H.Documents on Display102I.Subsidiary Information103ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES103A.Debt Securities103B.Warrants and rights104C.Other Securities104D.American Depositary Shares104PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES106ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106ITEM 15.CONTROLS AND PROCEDURES107ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT107ITEM 16B.CODE OF ETHICS107ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES108ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS108ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT108ITEM 16G.CORPORATE GOVERNANCE108ITEM 16H.MINE SAFETY DISCLOSURE110PART IIIITEM 17.FINANCIAL STATEMENTS111ITEM 18.FINANCIAL STATEMENTS111ITEM 19.EXHIBITS111SIGNATURES112INTRODUCTIONCellect is an emerging biotechnology company that is developing a novel technology platform known as Powered by Cellect that functionally selects stemcells from a mixed population of cells in order to improve the safety and efficacy of regenerative medicine stem cell therapies. We aim to become the standardenabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, physicians practicing regenerative medicine, andfor researchers and academia engaged in stem cell research.Our Ordinary Shares, or Ordinary Shares, are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “CLBD.” On July 29, 2016, our AmericanDepositary Shares, or ADSs, each representing twenty of our Ordinary Shares, and our warrants, commenced trading on the NASDAQ Capital Market under thesymbols “APOP” and “APOPW”, respectively.Unless otherwise indicated, all references to the terms “we”, “us”, “our”, “Cellect”, “the Company” and “our Company” refer to Cellect Biotechnology Ltd.and its whollyowned subsidiaries. References to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs, warrants and sharecapital, respectively, of Cellect.References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. References to“Ordinary Shares” are to our Ordinary Shares, par value of NIS 0.1 per share. We report financial information under International Financial Reporting Standards, orIFRS, as issued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally acceptedaccounting principles in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for theyear ended on December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S.dollar translations of NIS amounts presented in this annual report on Form 20F for the year ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTSCertain information included or incorporated by reference in this annual report on Form 20F may be deemed to be “forwardlooking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are notthe only way these statements are identified.These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that containprojections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion anduse of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project,believe or anticipate will or may occur in the future.Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forwardlookingstatements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forwardlookingstatements include, among other things:●the overall global economic environment;●the impact of competition and new technologies;1●general market, political and economic conditions in the countries in which we operate;●projected capital expenditures and liquidity;●changes in our strategy;●litigation; and●those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and FinancialReview and Prospects”, as well as in this annual report on Form 20F generally.Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20F which are designed to adviseinterested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this annual report on Form 20F are made as ofthe date hereof, and we undertake no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future eventsor otherwise, except as required by law.In addition, the section of this annual report on Form 20F entitled “Item 4. Information on the Company” contains information obtained from independentindustry sources and other sources that we have not independently verified.PART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataThe selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements andnotes thereto. The selected consolidated statement of profit or loss and other comprehensive income data for fiscal years 2016, 2015 and 2014, and the selectedconsolidated financial position data at December 31, 2016, 2015 and 2014, have been derived from our audited consolidated financial statements and notes theretoset forth elsewhere in this annual report on Form 20F. The selected financial data should be read in conjunction with our consolidated financial statements, and arequalified entirely by reference to such consolidated financial statements.2Statement of comprehensive loss dataConveniencetranslationYear endedDecember 31,Year endedDecember 31,2014201520162016N I S In Thousands except shares and share dataU.S. dollars inthousandsResearch and development expenses3,0585,8938,2562,147General and administrative expenses2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Net loss5,55110,17215,3173,983Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share0.0840.1370.1680.044Weighted average number of shares outstanding used to compute basic anddiluted loss per share65,968,76874,475,10991,128,51691,128,516Statement of financial positionConveniencetranslation(Note 2d)December 31,December 31,201520162016N I S In ThousandsU.S. dollars inthousandsCash and cash equivalents3,9136,2791,633Sort term deposits19,6605,113Marketable securities7,8294,9971,300Other receivables4121,461380Restricted cash2014036Property, plant and equipment1,1871,373357Total assets13,36133,9108,819Trade payable4661,401364Other payables2,3942,084542Traded Warrants to ADS1,938504Total liabilities2,8605,4231,410Total shareholders’ equity10,50128,4877,4093The following table sets forth the high and low daily representative exchange rates for the NIS to $1 U.S. dollar as reported by the Bank of Israel for each ofthe prior six months.NIS per U.S. dollarsMonthHighLowAveragePeriodEndFebruary 20173.7683.6593.7293.659January 20173.8603.7693.8183.769December 20163.8673.7873.8293.845November 20163.8763.7993.8433.839October 20163.8563.7783.8223.849September 20163.7863.7463.7663.758B.Capitalization and IndebtednessNot applicable.C.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsYou should carefully consider the risks described below, together with all of the other information in this annual report on Form 20F. The risks describedbelow are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materiallyand adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our ADSscould decline.Risks Related to Our Financial Position and Capital RequirementsWe are an early stage company with a limited operating history.Our whollyowned subsidiary commenced operations developing our functional stem cell selection technology, which we refer to as Powered by Cellect , in2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise,including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Ourlikelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with theestablishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks anduncertainties associated with developing and commercializing our Powered by Cellect technology platform, we are unable to predict the extent of any future lossesor when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor inour securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of proceduresand products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize Powered by Cellect , and ourbusiness may fail.4We have a history of losses and can provide no assurance of our future operating results.Since 2011, we have been focused on research and development activities with a view to developing our Powered by Cellect technology platform. We havefinanced our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the NASDAQ onJuly 29, 2016) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximatelyNIS 15.3 million ($4.0 million) in 2016, NIS 10.2 million ($2.6 million) in 2015, NIS 5.5 million ($1.4 million) in 2014, and NIS 3.7 million ($1.0 million) in 2013. As ofDecember 31, 2016, we had an accumulated deficit of approximately NIS 35.8 million ($9.5 million). We do not know whether or when we will become profitable. Todate, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Ourlosses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm onour audited financial statements as of and for the year ended December 31, 2016 contains an explanatory paragraph regarding substantial doubt about our ability tocontinue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:•initiate and manage preclinical development and clinical trials for our ApotainerTM kits;•implement internal systems and infrastructures;•seek to license additional technologies to develop;•hire management and other personnel; and•move towards commercialization.We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit,reduce or terminate our product development or commercialization efforts.As of December 31, 2016, we had approximately NIS 31.0 million ($8.0 million) in cash and cash equivalents including marketable securities and short termdeposits, a working capital of NIS 28.9 million ($7.5 million) and an accumulated deficit of NIS 35.7 million ($9.5 million). As of December 31, 2016, we had sufficientcash and cash deposits to fund operations through the end of the first quarter of 2018 if we do not raise additional capital. Since our inception, most of ourresources have been dedicated to the development of Powered by Cellect . In particular, we have expended and believe that we will continue to expend significantoperating and capital expenditures for the foreseeable future developing our Powered by Cellect technology platform and our ApotainerTM collection kits. Theseexpenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinicaltrials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializingany products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because theoutcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete thedevelopment and commercialization of our Powered by Cellect technology platform, our ApotainerTM collection kits and any other future product. In addition, otherunanticipated costs may arise. As a result of these and other factors currently unknown to us, we require additional funds through public or private equity or debtfinancings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorablemarket conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activitiesmay harm our growth strategy, competitive position, quality compliance and financial condition.Our future capital requirements depend on many factors, including:•the number and characteristics of products we develop from our Powered by Cellect technology platform;•the scope, progress, results and costs of researching and developing our Powered by Cellect technology platform and any future products, and conductingpreclinical and clinical trials;5•the timing of, and the costs involved in, obtaining regulatory approvals;•the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;•the cost of manufacturing any future product we successfully commercialize;•our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of suchlitigation;•the costs of inlicensing further patents and technologies;•the cost of development of inlicensed technologies;•the timing, receipt and amount of sales of, or royalties on, any future products;•the expenses needed to attract and retain skilled personnel; and•any product liability or other lawsuits related to any future products.Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our Powered by Cellecttechnology platform or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary tocommercialize our Powered by Cellect technology platform, our ApotainerTM collection kits or any future products.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholderswill be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares todecline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable toraise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development orcommercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.Risks Related to Product Development and Regulatory ApprovalOur product development program is based on a novel functional stem cell selection technology platform and is inherently risky.We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our Powered by Cellecttechnology platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation, thirdpartyreimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatoryapproval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.Our Powered by Cellect technology platform is in an early stage of discovery and development, and we may fail to develop any commercially acceptable orprofitable products.We are concentrating our efforts on developing our first line of products, our ApotainerTM collection kits, which is based on our Powered by Cellect technologyplatform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such, we have yet to develop anyproducts that have been approved for marketing, and our future success depends on the successful development of our ApotainerTM selection kits for HSCT.There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalablemanufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ourApotainerTM selection kits on a timely or profitable basis, if at all. Our ApotainerTM selection kits are not expected to be commercially available for several years, ifat all.6If the Food and Drug Administration (the “FDA”) classifies our ApotainerTM selection kits as a drug, biologic or a combination product subject to the primaryjurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, we may not be able to obtain the necessaryapproval to market our ApotainerTM selection kits or other products based on our Powered by Cellect technology platform in a timely manner or at all. Even ifwe do obtain approval, the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.We plan to bring our ApotainerTM selection kits to market for Hematopoietic stem cell transplantation (“HSCT”) as a combination product subject to the primaryjurisdiction of The Center for Devices and Radiological Health (“CDRH”), which is likely to result in the regulatory path usually followed for medical devices, whichgenerally has less burdensome and costly requirements than the requirements for approval of a drug or biologic. The classification of our ApotainerTM selectionkits by the FDA as a drug, a medical device or a combination product depends upon, among other things, the regulatory definition of a drug and a device, theirprimary mode of action and the indications for use or product claims. While we have had informal discussions with the FDA concerning our regulatory plans, wecannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product subject to the primary jurisdiction of the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as drug, biologic or a combination product subject tothe primary jurisdiction of the Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research jurisdiction, or were to prospectively alterthe requirements for obtaining approval, the FDA could require us to meet more burdensome and lengthy approval requirements. Even if such approval could beobtained, we would be subject to more stringent level of postmarket regulation as well. If any of these events were to occur, our financial condition and results ofoperations and cash flows could be materially and adversely affected.Clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on Powered by Cellect technology platform wouldbe expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in anynecessary clinical trials would prevent us from commercializing our ApotainerTM selection kits or any future product and could adversely affect our business,operating results and prospects.Initiating and completing clinical trials necessary to support approval for our ApotainerTM selection kits or any future products based on our Powered byCellect technology platform that we may develop, or additional safety and efficacy data that the FDA may require for any new specific indications of our technologythat we may seek, would be time consuming and expensive with an uncertain outcome. Moreover, the results of early clinical trials are not necessarily predictive offuture results, and any product candidate we advance into clinical trials may not have favorable results in later clinical trials.Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit.Patient enrollment in clinical trials and completion of patient participation and followup depends on many factors, including the size of the patient population, thenature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability ofappropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria forparticipation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requiresthem to undergo extensive posttreatment procedures or followup to assess the safety and effectiveness of our product candidates or if they determine that thetreatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials maydie before completion of the trial or suffer adverse medical events unrelated to our product candidates.7Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop suchprotocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/orfor a longer followup period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure ofpatients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our productcandidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results andprospects.The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trialsmay result in the discovery of adverse side effects.Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or anynew indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. Theclinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us tostop seeking additional clearances or approvals for our ApotainerTM selection kits, abandon our Powered by Cellect technology platform or delay development ofother product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercializea product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’sprofile.We might be unable to develop product candidates that will achieve commercial success in a timely and costeffective manner, or ever.Even if regulatory authorities approve our ApotainerTM selection kits, they may not be commercially successful. Our ApotainerTM selection kits may not becommercially successful because government agencies and other thirdparty payors may not cover the product or the coverage may be too limited to becommercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval,assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Our expensescould increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign,to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Thirdparties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our productcandidates will be expensive, if approved. Demand for any ApotainerTM selection kits for which we obtain regulatory approval or license will depend largely onmany factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other thirdparty payors, pricing, theeffectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effectsassociated with our products. If physicians, government agencies and other thirdparty payors do not accept our products, we will not be able to generatesignificant revenue.If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.We intend to seek regulatory approval for our ApotainerTM selection kits in a number of countries outside of the United States and expect that these countrieswill be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary fromcountry to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority doesnot ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risksassociated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our products in any foreign market.8If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectualproperty rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.We may seek to obtain an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as anorphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketingexclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full New DrugApplication (“NDA”), to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receiveorphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusivemarketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assuresufficient quantity of the drug to meet the needs of patients with the rare disease or condition.The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for lifethreatening or chronicallydebilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivityfollowing drug approval, subject to reduction to six years if the designation criteria are no longer met.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDAconcludes that the later drug is safer, more effective or makes a major contribution to patient care.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications thatmay be more profitable or for which there is a greater likelihood of success.Although we believe that our Powered by Cellect technology platform has broad application, because we have limited financial and managerial resources, we arecurrently focused on development of our ApotainerTM selection kits for HSCT in order to demonstrate commercial viability of our technology platform. As a result,we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Ourresource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and futureresearch and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate.9We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or anyfuture product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our ApotainerTM selectionkits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or sell our ApotainerTMselection kits or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and otherdevelopment and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentiallyimproving our financial position. Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, ourdevelopment of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on ourbusiness prospects.If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which couldaffect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm ourreputation.If we or our manufacturers or other thirdparty contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject toregulatory actions, which could affect our ability to develop, market and sell our ApotainerTM selection kits or any future product candidates under developmentsuccessfully and could harm our reputation and lead to reduced demand for or nonacceptance of our proposed product candidates by the market. Even technicalrecommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make themanufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. Themode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longercommercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional BiosafetyCommittee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem aproduct candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing signal,Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe that we will be able to obtain a sufficientsupply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place. If our current supplier or any other supplier suffers amajor natural or manmade disaster at its manufacturing facility, or if they otherwise cease to supply to us, then we would not be able to manufacture our productcandidates until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of thirdparty suppliers with the necessarymanufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of a product candidate or its key materials for a preclinical or clinical trial could considerably delay completion of our clinicalstudies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials afterregulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortagein supply, which would impair our ability to generate revenues from the sale of our product candidates.10Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability tomarket and sell our products.Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and thirdpartypayors to decrease costs. Thirdparty payors are increasingly challenging the prices charged for medical products and services and instituting cost containmentmeasures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limitedMedicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments toproviders by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase newtechnologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek tocontrol healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the futurethat limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limitreimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using ourproducts will be reimbursed at a costeffective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countrieswhere we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtaininternational reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell ourproducts and have a material adverse effect on our business and financial condition.Should our products be approved for commercialization, our financial performance may be adversely affected by medical device tax provisions in thehealthcare reform laws.PPACA currently imposes, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the UnitedStates. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be $38 billion over the nextdecade. The Internal Revenue Service issued final regulations implementing the tax in December 2012, which requires, among other things, bimonthly payments andquarterly reporting. Once we market products, we will be subject to this or any future excise tax on our sales of certain medical devices in the United States. To theextent our products are considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States will besubject to this 2.3% excise tax.Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem celltechnologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claimsthat stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies ingeneral has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem celltechnology could materially hurt the market acceptance of our technologies.The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain ourmanagement and consulting team could have a material adverse effect on our business, financial condition or results of operations.Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of ourbusiness, particularly Dr. Shai Yarkoni, our Chief Executive Officer, and Dr. Yaron Pereg, our Chief Development Officer. Our failure to retain the personnel that havedeveloped much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our futureoperations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, tocontinue the development and commercialization of our current and future products. As of the date of this annual report, we do not have keyman insurance on anyof our officers or consultants.11As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employeesor consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on ourbusiness, financial condition and results of operation.We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never beprofitable.The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cellbased therapies and/or devices designedto isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical,biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States andabroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than wedo, and have substantially greater financial resources than we do, as well as significantly greater experience in:•developing stem cell selection technology;•undertaking preclinical testing and human clinical trials;•obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;•manufacturing medical devices; and•launching, marketing and selling medical devices.We are aware of two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, whichdominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori Therapeutics, or Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult adiposederived stemand regenerative cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and futureclinical use. We believe that both technologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population ofcells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD, a lifethreatening condition associated with allogeneic HSCT.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection. We believe, however, thatmany of these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance theirinhouse processes.If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our Powered by Cellecttechnology platform or ApotainerTM selection kits, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing andcommercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors mayalso develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or noncompetitive. If we cannotsuccessfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.12The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competitionin the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:•attract parties for acquisitions, joint ventures or other collaboration;•license proprietary technology that is competitive with Powered by Cellect technology platform or ApotainerTM selection kits;•attract funding; and•attract and hire scientific talent and other qualified personnel.Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we willneed to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commerciallyreasonable terms, if at all.A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have amaterial adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidatesin human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actionsbrought against us, with or without merit, could result in:•liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required topay from other sources, if available;•an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew orobtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;•withdrawal of clinical trial volunteers or patients;•damage to our reputation and the reputation of our products, including loss of any future market share;•regulatory investigations that could require costly recalls or product modifications;•litigation costs; and•diversion of management’s attention from managing our business.We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our productcandidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain andproduct liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amountsto protect against potential losses.If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our businessmay experience serious adverse consequences.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations,to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud andabuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, selfdealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programsand other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation.13Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. However, it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanagedrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of significant fines or other sanctions.In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding ourbusiness, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to bebrought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such aclaim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks importantto the success of our business.We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results ofoperations and financial condition.We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentiallyrapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capitalresources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, trainand manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational,financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up andimplement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not beable to successfully commercialize our Powered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. Failure to attractand retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, themanagement, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel andto improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on ourbusiness, results of operations and financial condition.If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss ordamage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtainingadequate directors’ and officers’ liability insurance.Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our ApotainerTM selection kits orany future product candidate. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects,financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may onlymitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claimsmade against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers anddirectors to manage us.14Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.In recent years, the United States and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financialcrisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability,ratings downgrades of certain investments and declining valuations of others. The United States and certain foreign governments have taken unprecedentedactions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actionstaken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed,on a timely basis and on acceptable terms or at all.Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately complywith federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results ofoperations and financial condition.Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with anylaws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results ofoperation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.Risks Related to Our Intellectual PropertyWe rely upon patents to protect our technology.The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our currentor future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not providea competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, ormay have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO) and foreign patent agencies in severalstages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee orby other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of apatent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, nonpayment of fees and failure toproperly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect onour business.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, timeconsuming and ultimatelyunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid orunenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated orinterpreted narrowly, which could adversely affect us.15Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights ofthird parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been broughtagainst us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use ofour technology does not infringe thirdparty patents. It is also possible that we have failed to identify relevant thirdparty patents or applications that may havebeen issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that datethat will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are publishedapproximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patentapplications covering our technology were filed by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology,including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringementclaims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain alicense, it could be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we arefound to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our businessoperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have asimilar negative impact on our business.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States and Israel can be less extensive than those in the United States and Israel. In addition, the laws of someforeign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in andinto the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their ownproducts and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United Statesand Israel.Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certaincountries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property,particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents ormarketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreignjurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe anddeveloping countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inthose countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party,which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.16We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual propertyto compete against us.Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the nondisclosure ofconfidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments,discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek toenter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize orindependently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with ourPowered by Cellect technology platform, our ApotainerTM selection kits or any future product candidate. If a dispute arises, a court may determine that the rightbelongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary knowhow that weseek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ,we still face the risk that:•these agreements may be breached;•these agreements may not provide adequate remedies for the applicable type of breach;•our proprietary knowhow will otherwise become known; or•our competitors will independently develop similar technology or proprietary information.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to develop technology that is similar to our Powered by Cellect technology platform, our ApotainerTM selection kits or any future productcandidate, but that is not covered by the claims of the patents that we own;•we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that weown or have exclusively licensed;•we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as aresult of legal challenges by our competitors;•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned fromsuch activities to develop competitive products for sale in our major commercial markets;17•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.We may be subject to claims challenging the inventorship of our patents and other intellectual property.We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as aninventor or coinventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developingour product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectualproperty. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives apatent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if theemployee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The IsraeliSupreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claimtheir right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our futurerevenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectualproperty, which in turn could impact our future profitability.Risks Related to Our Operations in IsraelPotential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research anddevelopment facilities are located, may adversely affect our results of operations.Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. Our officers andmost of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect ourbusiness and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboringcountries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations andresults of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia groupand political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas,the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missilesbeing fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikesagainst civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected businessconditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities andtowns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially largernumber of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activityin the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of amilitary regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previouslyoutlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peacefuland diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countriesin the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflictin Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead todeterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causingadditional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed tohave a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, aviolent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’sactivities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Thesesituations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instabilityin the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties withwhom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary inorder to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreementsinvolving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions insuch agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict businesswith the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition orthe expansion of our business.18Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.None of our directors or officers are residents of the United States. Most of our directors’ and officers’ assets and our assets are located outside the UnitedStates. Service of process upon us or our nonU.S. resident directors and officers and enforcement of judgments obtained in the United States against us or ournonU.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may bedifficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federalsecurities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not bethe most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law isapplicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costlyprocess. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israelicourts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with anotherjudgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court willnot enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases)or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors frombenefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective oftheir agreements with us, which in turn could impact our future profitability.We generally enter into noncompetition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, ifthey cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce theseagreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from theexpertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce noncompeteundertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of theemployer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectualproperty. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our formeremployees or consultants and our ability to remain competitive may be diminished.19In addition, Chapter 8 to the Israeli Patents Law, 57271967, or the Patents Law, deals with inventions made in the course of an employee’s service and during hisor her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreementwhich explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, suchdetermination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from hisemployer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer.The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions doesnot rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Courtfor further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and developmentemployees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims aresuccessful, which in turn could impact our future profitability.Your rights and responsibilities as as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities ofshareholders of U.S. corporations.Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. Theserights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.based corporations. In particular, a shareholder of anIsraeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and othershareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such asan amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholderapproval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder whoknows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or otherpower towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. See “BoardPractices — Approval of Related Party Transactions under Israeli Law.” Since Israeli corporate law underwent extensive revisions approximately 15 years ago, theparameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to imposeadditional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control,even when the terms of such a transaction are favorable to us and our shareholders.Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactionsinvolving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger maynot be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar ofCompanies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of eachclass of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of theissued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, exceptthat if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by amajority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including thosewho indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter theconsideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).20Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize taxfree share exchanges to the same extentas U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment ofnumerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participatingcompanies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomespayable even if no actual disposition of the shares has occurred.These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition ormerger would be beneficial to us or to our shareholders.Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuationsand inflation.Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, weare exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us fromadverse effects.Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (orolder, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response toincreases in terrorist activity, there have been periods of significant callups of military reservists. It is possible that there will be military reserve duty callups in thefuture. Our operations could be disrupted by such callups, which may include the callup of members of our management. Such disruption could materiallyadversely affect our business, financial condition and results of operations.Risks Related to the Ownership of Our ADSs or Warrants or Ordinary SharesSales of a substantial number of our ADSs or Ordinary Shares or Warrants in the public market by our existing shareholders could cause our share price to fall.Sales of a substantial number of our ADSs or Ordinary Shares or warrants in the public market, or the perception that these sales might occur, could depress themarket price of our ADSs or Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our ADSs or Ordinary Shares or warrants.21If we were to be characterized as a PFIC for U.S. tax purposes, U.S. holders of our ADSs could have adverse U.S. income tax consequences.If we were to be characterized as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. taxpayerowns ADSs, such U.S. holder could be liable for additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchangeor other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Based on the nature of our business, the projected composition ofour income and the projected composition and estimated fair market values of our assets, we may be classified as a PFIC. In addition, we may have been a PFIC inprior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs or warrants during a period when we are a PFIC will be subject to theforegoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or marktomarket election. A U.S. investor may beable to mitigate some of the adverse U.S. federal income tax consequences with respect to owning the ADSs for our taxable year ending December 31, 2016, providedthat such U.S. investor is eligible to make, and successfully makes, a “marktomarket” election. U.S. investors could also mitigate some of the adverse U.S. federalincome tax consequences of us being classified as a PFIC by making a “qualified electing fund” election. U.S. Holders are strongly urged to consult their taxadvisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a “qualified electing fund” or“marktomarket” election with respect to our ADSs in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income TaxConsiderations.”Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could have a material adverse effect onour business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,which could have a material adverse effect on the price of the ADSs.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test ourinternal control procedures in order to satisfy the requirements of Section 404 of the SarbanesOxley Act, which requires annual management assessments of theeffectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control, as such standards are modified,supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal control, failing to remediate these deficiencies orweaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reportedfinancial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, ouroperating results could be harmed.As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, whichcould make the ADSs or warrants less attractive to investors.For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and otherregulatory requirements that are generally unavailable to other public companies, including:•an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of theSarbanesOxley Act; and•an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’sreport in which the auditor would be required to provide additional information about our audit and our financial statements.We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion ormore, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) thedate on which we have, during the previous threeyear period, issued more than $1 billion in nonconvertible debt or (iv) the date on which we are deemed a “largeaccelerated issuer” as defined in Regulation SK under the Securities Act of 1933, as amended (the “Securities Act”).22We cannot predict if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the ADSs orwarrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market price of the ADSs may be more volatile.We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and ExchangeCommission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be subject to reporting obligations that, in certainrespects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxystatements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulationspromulgated under the Israeli Companies Law, as amended, or the Companies Law, as an Israeli public company listed overseas we will be required to disclose thecompensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli publiccompanies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will alsohave four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly asU.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions andshortswing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD(Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protectionsavailable to you in comparison to those applicable to a U.S. domestic reporting companies.As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicableSEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.As a “foreign private issuer,” we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwiserequired under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among otherthings, board of directors independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country lawinstead of the listing rules of NASDAQ that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment ofcertain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involvingissuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We also intend to follow our homecountry rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of NASDAQ. We mayin the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governancepractices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection to you than what isaccorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers. See Item 16.G. “CORPORATE GOVERNANCE”If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change theirrecommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negativelyimpacted.The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, ourmarket or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorablecoverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs or warrants, or provide more favorable relativerecommendations about our competitors, the price of the ADSs or warrants would likely decline. If any analyst who may cover us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs orwarrants or their trading volume.23The market price for the ADSs and warrants may be volatile.The market price for the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including thefollowing:•our failure to obtain the approvals necessary to commence clinical trials;•results of clinical and preclinical studies;•announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;•announcements of technological innovations, new products or product enhancements by us or others;•adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;•changes or developments in laws, regulations or decisions applicable to our product candidates or patents;•any adverse changes to our relationship with manufacturers or suppliers;•announcements concerning our competitors or the regenerative medicine or healthcare industries in general;•achievement of expected product sales and profitability or our failure to meet expectations;•our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringementactions;•any major changes in our board of directors, management or other key personnel;•announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or capital commitments;•expiration or terminations of licenses, research contracts or other collaboration agreements;•public concern as to the safety of our products that we, our licensees or others develop;•success of research and development projects;•developments concerning intellectual property rights or regulatory approvals;•variations in our and our competitors’ results of operations;•changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;•future issuances of ordinary shares, ADSs or warrants or other securities;•general market conditions, including the volatility of market prices for shares of healthcare companies generally, and other factors, including factors unrelatedto our operating performance; and•the other factors described in this “Risk Factors” section.These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result insubstantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not relatedto the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs andwarrants.Our ordinary shares, the ADSs and warrants are traded on different markets and this may result in price variations.Our ordinary shares have been traded on the TASE since 1990. Our ADSs and warrants have been traded on NASDAQ since July 29, 2016. Trading in thesesecurities on these markets take place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones,different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to theseand other factors. Any decrease in the price of our securities one of these markets could cause a decrease in the trading price of our securities on the other market.24We have publicly announced our intention to delist our ordinary shares from the TASE which may result holders of our ordinary shares having difficultydisposing of their shares.We have publicly announced our intention to delist our ordinary shares that currently trade on the TASE, subject to various approvals, including shareholderapproval. If we are successful in delisting our ordinary shares from the TASE, holders of our ordinary shares may have difficulty disposing of their ordinary sharesin the absence of an active trading market.Substantial future sales or perceived potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinaryshares or the ADSs or warrants to decline.Substantial sales of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinaryshares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these sales may occur in the future, could cause a reduction in themarket price of our ordinary shares, ADSs or warrants. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that areexercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares or the ADSs or warrants andwill have a dilutive effect on our existing shareholders and holders of ADSs or warrants.We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors maynot benefit from holding our securities.We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in theforeseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs orordinary shares, or investors who exercise the warrants, will not be able to benefit from owning these securities unless their market price becomes greater than theprice paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess ofthe price paid.You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you maynot receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make themavailable to you.The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holdersof ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act,but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currencythat was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effecta substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute.We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also haveno obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositarymay withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes itis required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinaryshares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make themavailable to you. These restrictions may cause a material decline in the value of the ADSs.25Holders of ADSs must act through the depositary to exercise their rights as our shareholders.Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares inaccordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting isno less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders ofthe ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respectto any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their votinginstructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but wecannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of anysuch vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested.In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders meeting.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deemsexpedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally whenour books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of anygovernment or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholdersvote.Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares,including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matterson which our shareholders vote.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOur legal and commercial name is Cellect Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israelon August 4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013, when wechanged our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to change our name to Cellect BiotechnologyLtd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. Since 1990, our Ordinary Shares have been traded on the TASE in Israel, underthe symbol “CLBD.” On July 29, 2016, our ADSs and warrants, commenced trading on the NASDAQ Capital Market under the symbols “APOP” and “APOPW”,respectively.26From October 25, 2012 until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general meeting ofour shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger, which closed on July 1, 2013, CellectBiotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisablefor 227,358 ordinary shares, and options (Series 2) exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinaryshares), which constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted basis.Cellect Biotherapeutics was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing novel andunique technologies that allow the functional selection of stem cells through the substantial reduction of the complications that exist today in acceptable selectionmethods and increasing the chances of success of stem cell therapies.Our principal offices are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +97299741444. Our primary internet address iswww.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is our agent in the United States, and its address is25 Robert Pitt Drive, Suite 204 Monsey, New York 10952.We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible to, andintend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companiesincluding but not limited to not being required to comply with the auditor attestation requirements of the SEC rules under Section 404 of the SarbanesOxley Act. Wecould remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale ofcommon equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.0billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by nonaffiliates exceeds $700million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior threeyear period.We are a foreign private issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts us fromcompliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including the proxy rules, the shortswing profitsrecapture rules, and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Inaddition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domesticcompanies registered under the Exchange Act.Our capital expenditures for 2016, 2015 and 2014 amounted to NIS 0.6 million (approximately $0.15 million), NIS 1.0 million (approximately $0.26 million) and NIS0.2 million (approximately $0.06 million), respectively. Our purchases of fixed assets primarily include laboratory equipment used for the development of our clinicaltreatment and for Leasehold improvements du to rent of new offices as our company grow. We financed these expenditures primarily from cash on hand.Recent DevelopmentsOn February 14, 2017, we announced that we intend to file a petition with the Israeli court to voluntarily delist our ordinary shares from the TelAviv StockExchange in accordance with Section 350 of the Israeli Companies Law. Such delisting is dependent on a number of factors, including obtaining the approval of ourordinary shareholders.27On March 14, 2017, the district court of Tel Aviv (the “Court”) granted our request for the convening of a Special General Meeting of our shareholders for thepurpose of (i) approving the extension of the expiration date of our Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80 days from the Court’sapproval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017), (ii) to amend theexercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of our ordinary shares fromthe Tel Aviv Stock Exchange.In addition, the Court granted our request for the convening of a Special General Meeting of the holders of our Series1 Stock Options for the purpose of (i)approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, if granted, and (ii)to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20.We intend to act promptly to convene the Special General Meeting of our shareholders and a Special General Meeting of the holders of our Series1 StockOptions.B.Business OverviewWe are an emerging biotechnology company that has developed a novel technology platform known as Powered by Cellect that functionally selects stem cells inorder to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment ofthe stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged instem cell research.We believe our innovative technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of stemcells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while eliminating mature cells from this bulk of raw material.Animal models suggest that this process results in dramatic decrease of toxicity coupled with the enrichment of the stem cell population.Our Powered by Cellect technology platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process ofprogrammed cell death and is a vital part of physiological development and maintenance of all organisms. Stem cells flourish in an environment where normal cellsdie because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell death, areas typified by very high levels of apoptotic activityand apoptoticinducing signals.We are currently developing our first product based on our Powered by Cellect technology platform, the ApotainerTM selection kit. The ApotainerTM selectionkit is an easy to use, cost effective, off the shelf stem cell selection kit. The kit proof of efficacy is tested in clinical use in allogeneic (using stem cells from a donor)HSCT for the treatment of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation, has fordecades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also be used for other nonmalignant indications(such as autoimmune diseases), but is rarely used due to high toxicity. However, application of allogeneic HSCT is limited by GvHD, a condition in which thetransplanted immune cells (populating the graft in 10,000 higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHDdoes not resolve by itself and is a major cause of transplantrelated morbidity and mortality. Despite improvements in the outcome of HSCT over recent yearsthrough improved supportive care, infection control and use of reduced intensity and reduced toxicity conditioning regimens, HSCT is still associated withsignificant morbidity and mortality mainly due to GvHD, and as such HSCT is restricted to patients with life threatening diseases. Due to nonefficient selection ofstem cells for HSCT, the complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a significanttradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.28We have chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform inorder to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their associated medical complications. Webelieve that demonstrating the safety of our technology for this indication will validate the use of our Powered by Cellect technology platform for the treatment ofother indications (e.g., solid organ transplantation and autoimmune diseases) and consequently for the adoption of our Powered by Cellect technology platform bystem cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we believe that after the first reportedresults of our human trials, as discussed further below, we will achieve validation of our product’s safety profile, which may result in permitting us to further developour technology for multiple indications, even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide uswith the opportunity to license our Powered by Cellect technology platform in the near term.We plan to bring our ApotainerTM selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the CBER, which is likely toresult in the regulatory path usually followed for medical devices. The term “combination product”, when used to describe our ApotainerTM selection kits, refers toa product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological activity. We believe that our ApotainerTMselection kit will be designated as an orphan product and possibly a breakthrough technology, which, if received, would result in a reduced cost of development andexpedited marketing approvals, however there is no assurance that such designations will ever be obtained.All of our research efforts to date have culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 2016. In thisstudy we used small portions of a graft to validate and optimize the process, and show robustness and repeatability of the process. More than 100 samples wereanalyzed for the different effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony forming).Some of these samples were transplanted into murine models for safety and GvHD assessments. Results from this study are planned to be published in an upcomingmedical conference. The second study, which was initiated in the first quarter of 2017, is performed on cancer patients undergoing matched related HSCTtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. The first patient wasrecruited for this trial on February 6, 2017, and we expect interim results from this study during the second half of 2017.Consequently, we hope to commence a second human trial in the United States and/or Europe in the first half of 2018. We plan on holding a preInvestigationalNew Drug (“IND”) meeting with the FDA during H12017 and hopefully initiate USFDA study before the end of 2017. We hope to initiate a pivotal study in 20182019.Our StrategyWe have developed a novel technology platform, the Powered by Cellect technology platform, for the functional selection of adult stem cells. This technology isexpected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of achieving stem cells for any indication inquality, quantity and competitive price. We aim to become the standard enabling technology for the enrichment of stem cells and manufacturing of any adult stemcells based products for companies developing stem cell therapies and for researchers and academia engaged in adult stem cell research.Key elements of our strategy to accomplish this objective include the following:•Achieve relatively quick validation of the use of our Powered by Cellect technology platform in a clinical setting. We have chosen allogeneic HSCT for thetreatment of hematological malignancies as our first target indication for our Powered by Cellect technology platform in order to clinically validate that ourtechnology can efficiently select stem cells while eliminating harmful cells and consequently the medical complications such as GvHD. We believehematopoietic cells transplantation to patients undergoing allogeneic HSCT can be dramatically improved. Based on our Powered by Cellect technologyplatform, we are currently developing the ApotainerTM selection kit, an off the shelf stem cell selection kit, which we believe may significantly improve thetherapeutic potential of allogeneic HSCT by addressing major complications that currently contribute to the high morbidity and mortality of the procedure .We believe that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to undertake HSCT earlier in the blood cancer treatment routine.Typically, combination products obtain relatively quick validation from the FDA and the EMA when compared to pharmaceutical/ biological products anddrugs. Based on our initial consultations with our U.S. and European regulatory consultants, we believe that we might only need to successfully complete asingle pivotal study with a small number of patients (approximately one hundred in total) in order to obtain marketing approval of our ApotainerTM product.We believe such a study can be completed in approximately four to five years. However, there is no guarantee that the proposed pathway will be approved bythe FDA or EMA, or that validation will occur as quickly as we hope, if at all. In addition, we believe that our product may achieve either “breakthrough” ororphan drug designation with the FDA, enabling a fast track review and approval process by the FDA. Typically, the validation process for regular clinicaldevelopment for standard cell therapy can take between eight and ten years. In comparison to the typical validation process timeline, we believe ourtechnology platform may complete the validation process relatively quickly.29•Leverage our scientific, clinical and regulatory expertise to build and advance our Powered by Cellect technology platform beyond the allogeneic HSCTsetting. Based on the validation of our ApotainerTM selection kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for solid organtransplantation and autoimmune system disorders (such as Type 1 diabetes, Crohn’s disease, psoriasis and lupus). We also intend to develop our Poweredby Cellect technology platform for other sources of stem cells (e.g., cord blood and fat) and other types of stem cells — most notably mesenchymal andneural. We believe that by expanding the various applications, sources and types of stem cells that can be used with our technology, we will establish broaduse of our Powered by Cellect technology platform.•Build a diversified product portfolio. Beginning with the development of our ApotainerTM selection kit as a combined product or medical device, which webelieve will shorten the time to market, we intend to expand our product development and build a diversified product portfolio of Powered by Cellect productsfor a broad spectrum of market segments, up to and including all production and research processes for stem cell based products. The pipeline of products isdesigned to address different markets beyond the clinical use such as products for research purposes and tools for manufacturing facilities for cell therapiesand especially adult stem cells.•Selectively engage in strategic partnerships that establish our Powered by Cellect technology platform as the standard enabling technology for theenrichment of the stem cell population. We ultimately seek to collaborate with other companies engaged in developing stem cell therapies . By incorporatingour Powered by Cellect technology into their manufacturing process we will be able to significantly reduce their cost of manufacturing while improving theend products. As we believe our Powered by Cellect technology will significantly increase the yields of the first step of manufacturing (harvesting the stemcells ) from any source of stem cells (i.e. blood, bone marrow, fat) and will result in a more purified bulk of stem cells, the next steps needed to reach the finalproducts will be shorter, more efficient, less costly and result in a better product. We intend to launch a proactive campaign for engaging those companiesduring 2017.In the short term, we are currently focused on achieving the following critical milestones:•Pathway to firstinhuman proof of concept: We are currently enrolling patients to a phase I/II performed on cancer patients undergoing matched relatedtransplantation. This Phase I/II trial was approved by the Israeli Ministry of Health and the Rambam Medical Center’s ethical committee. First patient wasrecruited on February 6, 2017 and interim results are expected during the second half of 2017. We also plan to meet with the FDA for a preIND meeting duringthe first half of 2017.•Pathway to product prototype: We are engaged in developing prototypes of our ApotainerTM selection kit. Recently, we demonstrated a proof of concept forthe binding of the apoptotic protein to a polymer without impairing the protein's apoptotic activity. We tested a number of polymers and binding methods andselected the one best suited for manufacturing the stem cell selection kits. We aim to complete development of the prototype ApotainerTM selection kit by theend of 2017.30•Patent portfolio enhancement: We are currently expanding our patent coverage from our current seven patent families by applying for additional patents forinventions created during the development. In addition, we are seeking relevant patents available for in licensing.In the long term, we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to advance ourtechnologies and are pursuing strategic collaborations with members of academia and industry.Regenerative Medicine and Cell TherapyOur business focus is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According to RegenerativeMedicine (2008, 3(1), 15 [47]), regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normalfunction”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damagedtissue and by stimulating the body's own repair mechanisms to heal previously irreparable tissues and organs.Medical cell therapies are classified into two types: allogeneic (cells from a thirdparty donor) or autologous (cells from one’s own body), with each offering itsown distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from ahealthy donor. The use of healthy donors' cells is severely limited by the immune system of the patient which may reject the transplanted cells. This rejection islimited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from the stem cells is therefore the bottle neckof all stem cell based therapies.Regenerative medicine can be categorized into major subfields as follows:·Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, thirdparty donors or patients, from variousparts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immunetherapy, arthritis,heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfieldalso includes the development of growth factors and serums and natural reagents that promote and guide cell development.·Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fullyfunctional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used asbiomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractivefor certain applications. Therapeutic applications may include heart patch, bone regrowth, wound repair, replacement neourinary conduits,saphenous arterial grafts, intervertebral disc and spinal cord repair.·Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs andtreatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerativemedicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cellbased diagnostic tools.All living complex organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult through its lifetime.Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue and provide functional as well as cosmetic applications.The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bonemarrow and then blood and umbilical cordderived stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treatmany cancers. These types of cell therapies have been approved for use worldwide and are typically reimbursed by insurance.31Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (selfderived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’sProvenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a formof replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are alsobeing evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While noassurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improvehuman health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.Market for CellBased TherapiesAccording to a 2015 report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in 2018, achievinghigh revenue growth from 2015 to 2025.•The global population is aging. According to the United Nations Department of Economic and Social Affairs, 2 billion people will be aged 60 and older by2050, which means an increased prevalence of agerelated disease in general and chronic disease in particular. Heavily burdened healthcare systems arelooking to regenerative medicine to provide therapies that treat the root causes of chronic diseases rather than just their symptoms.•Expansion of stem cell therapies. Stem cell therapies are being extended to new and prevalent indications such as cardiovascular diseases,neurodegenerative diseases, and autoimmune diseases. The number of cell therapy companies that are currently in Phase II and Phase III trials has beengathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.•Potential new source of stem cells. The last decade has witnessed the emergence of umbilical cord cryopreservation for the storage of newborn blood forfuture medical use. This new market already affects the field of transplantations with a growing share of cord blood transplantations at the expense ofautologous and allogeneic transplantations of hematopoietic cells. In addition, another source of stem cells is fat used for treatment of bone, cartilage andskeleton related diseases as well as for esthetic purposes.•Increasing government, strategic partner, and investor support for stem cell research and development. According to the Alliance for RegenerativeMedicine, the stem cell and progenitor therapy market raised $2.6 billion in public and private funds in 2014, while according to the National Institutes ofHealth, or NIH, the level of annual support for stem cell research across the NIH is estimated to grow from $1.179 billion in 2011 to $1.436 billion in 2016.The following table from the 2015 Report of the Alliance for Regenerative Medicine illustrates the wide range of indications being targeted by the stem cellproduct pipeline:32Our Current Focus: Proof of Concept of our Powered by Cellect technology platform through the treatment of Haematological MalignanciesHaematological malignancies (blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignanciesinvolves the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed yearly worldwide, ofwhich 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from a donor). In the treatment of leukemia, an allogeneicprocedure is usually preferred over autologous due to a higher risk of recurrence of the underlying disease.33HSCT, also known as bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone marrow, multiply anddifferentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the degree of immune compatibility between the donor andthe host cells. In the majority of cases, the unavailability of fully matching donors results in complications due to GvHD.GvHD is a complication that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow orstem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Despite improved prophylactic regimens, acute GvHDdisease still occurs in 26% to 34% of recipients of full matched sibling donor grafts, and in 42% to 52% of recipients of matched unrelated donor grafts (Center forInternational Blood and Marrow Transplant Research, last accessed 30 August 2016). The incidence of chronic GvHD ranges from 20% to 70% of recipients ofallogeneic HCT, and is increasing due to the increased number of allogeneic HSCT survivors, older recipient age, use of alternative donor grafts, and use ofperipheral blood stem cells. GvHD accounts for 15% of deaths after allogeneic HSCT (PérezSimón JA, et al., 2008), and is the leading cause of nonrelapse mortality(NRM) after allogeneic HSCT. Acute GvHD, which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severecases, can be lifethreatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with skin damage, oral and/orvaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and chemotherapy. The treatment’s adverse effects includeincreased exposure to infections, recurrent hospital admissions, damage to vital organs and, in some cases, secondary cancers. Both quality of life and lifeexpectancy are significantly decreased in these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids sufferfrom frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high mortality and morbidity and area meaningful limiting factor for what would otherwise be the most suitable therapy for cancer and autoimmune diseases.GvHD can be prevented by depletion of the Tcell population from the donor graft prior to transplantation. Methods used to capture and purge Tcells out of thedonor graft include using antithymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion proteins. However, T cells support HSCTengraftment and immune reconstitution and are potent initiators and mediators of graft versus tumor, or GvT, reactions. As such, purging Tcells can result inincreased risks of graft failure or delayed immune reconstitution leading to life threatening infection and/or reduced GvT response, increasing the chances of cancerrecurrence.Due to these and other complications and due to the extremely aggressive pretreatment chemotherapy and irradiation conditioning regimens, allogeneic HSCTis usually used only when the patient faces lifethreatening danger. If allogeneic HSCT could be made safer, it could be used far earlier and more frequently for evenmore effective treatment of blood cancers. There is widespread awareness of the need for improved immunesystem management technologies for HSCT — both toimprove outcomes of transplantations that have already taken place and to make transplantation safe enough to become appropriate for older patients and thosewith earlierstage diseases.The use of HSCT has been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with the inherenttoxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well as creating immune tolerance for organtransplantation.We have therefore chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our Powered by Cellect technologyplatform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells and their associated medical complicationscaused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical need that we seek to address, we consider the validation of ourtechnology as an important driver of a much broader utility of our platform technology.34An Unmet Need: Efficient Stem Cell SelectionTypically, there is a very small number of stem cells in the source tissue (1 in 10,000 cells in bone marrow, the tissue with the highest stem cell concentration) and,once removed from the body, these cells have the propensity to differentiate and lose their “stemness”. Generation of large quantities of stem cells is therefore verychallenging. This scarcity of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both in researchand in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor sample of mature cells that trigger immune responseand create the major adverse effects associated with transplantation.There are currently two main methods for attaining a critical mass of stem cells:•Morphological stem cell selection:Negative selection approach: Elimination of the cells that contribute to engraftment failure, usually T cells. It uses T cellspecific antigens common to all T cellsand therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment support and combating tumors. The clinical outcome is reducedengraftment and reoccurrence of the tumor.Positive selection approach: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor cells and therefore asignificant number of reconstituting capable cells are discarded. It has been clinically shown that the loss of reconstituting capable cells significantly reducesengraftment.Both of these approaches have a poor efficacy/toxicity ratio.•Stem cells population expansion: Most companies expand stem cell numbers in a culture. However, expansion of the reconstituting capable cells whilemaintaining their level of differentiation is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) duringwhich sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment that is not widelyavailable. Moreover, the regulatory demands related to longterm culturing create a significant challenge for these companies.In short, we believe the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify thebiological sample prior to transplantation. We believe our novel Powered by Cellect technology platform that quickly and effectively enriches the stem cellpopulation while eliminating the unwanted cells in a biological sample will contribute significantly to the growth of the stem cell therapy market.Our first target market for our Powered by Cellect technology platform is allogeneic HSCT for hematological malignancies. According to the Center forInternational Blood & Marrow Transplant Research, over 6,000 allogeneic HSCTs were performed in the United States in 2012 for these two diseases. A 2013 surveyconducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over 10,500 allogeneic HSCTs wereperformed for leukemias and for lymphoma. We believe that beyond the value of proving and validating our platform technology, these numbers represent asubstantial market opportunity for us to prove the benefits of our Powered by Cellect technology platform.Our Proprietary Stem Cell Technology PlatformWe believe our innovative Powered by Cellect technology platform represents a potential breakthrough in the field of regenerative medicine through thefunctional selection of stem cells.35Our technology is based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr. Nadir Askenasy,our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays, which are based on the physiological features ofstem cells, one can achieve dual goals: (i) the elimination of non stem cells that are responsible for the immune triggering and most of the clinical adverse effects, and(ii) the achievement of a larger and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantationsand enable the whole regenerative (transplantation) segment to achieve its full potential.Stem cells flourish in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part of physiologicaldevelopment and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells are attracted to what are often characterized as disasterareas in which there are very high levels of apoptotic activity and apoptoticinducing agents. Our research has demonstrated that stem cells are resistant toapoptotic stimulation by the physiological molecules that cause mature cells to selfdestruct. We have chosen this functional characteristic of stem cells to useapoptosisinducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated medical complications.Our preclinical studies to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while at the sametime eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved graft acceptance and a reduction in treatmentcost.The ApoGraft ProcessTo achieve functional selection of stem cells utilizing our Powered by Cellect technology platform, we have developed the ApoGraft process, which is intendedfor the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral blood hematopoietic stem andprogenitor cells. Following collection of the cells from a matched related donor, the donor graft is immediately incubated for 2 hours in the presence of FasL, washedtwice and transplanted via intravenous administration. FasL, also known as CD95L, is a typeII transmembrane protein that belongs to the tumor necrosis factorfamily. The binding of FasL with its receptor induces apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and functionof the immune system.The apoptotic inducer used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Apo010. Apo010 is a recombinant, solubleprotein. This protein has been developed to mimic the natural occurring FasL clustering that activates its receptor and leads to apoptosis in susceptible cellpopulations.36The ApoGraft process is illustrated below:ApotainerTM Selection KitOur first product that is currently being developed, the ApotainerTM selection kit, is an easy to use, cost effective, off the shelf stem cell selection kit for clinicallaboratories designed to improve the results of human allogeneic HSCT.37The ApotainerTM selection kit is a specialized infusion bag which its inner surface is coated with FasL. The ApotainerTM selection kit is designed to create amicroenvironment intended to induce apoptosis by creating an exvivo microenvironment that resembles the normal physiological conditions where stem cells canmigrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once there, proliferate and differentiate into the needed tissue and organ.Our preclinical research has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApotainerTM selection kit.This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft before transplantation.The ApotainerTM selection kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies inwhich the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHDcausing cells expressing the Fasreceptor to bind to the surfacebound FasL and undergo apoptosis while the hematopoietic stem cells remain active. The ApotainerTM selection kit thus is expectedto harness the differential effect of the apoptotic microenvironment on mature cell and stem cell populations, producing an enriched population of stem cells that arethen transfused to the patient.Preliminary studies conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container enablingpositive biological activity of FasL while tightly bound. We believe that this polymerbinderFasL complex is the basis not only for the ApotainerTM selection kit ascurrently in development, but also for a line of containers with different designs and sizes to be used for different applications.38Preclinical StudiesAs part of our invitro studies, and prior to animal studies, we performed studies to determine which apoptotic molecules have the best differential effect on stemand nonstem cells. We have conducted eleven animal studies including murine to murine and human cells to murine transplantation models measuring the relevanteffects (GvHD, mortality and engraftment). We have also tested various sources of human hematopoietic cells (mobilized peripheral blood, bone marrow andumbilical cord blood). Major preliminary findings include the following:•Resistance to receptormediated apoptosis is an inherent characteristic of stem and progenitor cells;•Preservation of stem and progenitor cells;•Preservation of successful engraftment (95% engraftment by Contract Research Organization);•Preservation of antitumor activity;•Apoptosisinsensitive progenitors are privileged for engraftment through competitive advantage over the apoptosissensitive differentiated cells;•Using the most stringent conditions for GvHD, there was a statistically significant reduction in mortality rate (20–100% to <10%); and•Significant reduction of cells that attack the immune system.We believe these preliminary findings support our product claim for:•Selection of stem and progenitor cells based on insensitivity to receptormediated apoptosis from all sources;•Ex vivo selective depletion of GvHD causing cells;•Accelerated engraftment by ex vivo treatment of umbilical cord blood; and•Induction of tolerance to grafts and suppression of autoimmunity.We also achieved an important milestone in the development of our stem cell selection kits: proof of feasibility that our apoptosisinducing protein can be boundto surfaces without compromising the biological activity of the protein. Trials that were conducted in cooperation with American and Israeli partners, includingEntegris, University of Louisville, BarIlan University and the Israel Center for Plastics and Rubber, showed that on some of the plastic surfaces tested, the boundprotein induced apoptosis in the same manner as it had in previous experiments in which the protein was unbound.In June 2015, we entered into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yieldenhancing materialsand solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating in the development ofthe polymer film that will be used for the manufacturing of the ApotainerTM selection kit. The Entegris Agreement contemplates that upon successful developmentof the polymer film, Entegris will supply the polymer film upon terms to be agreed to between the parties at such time. The parties agree that if Entegris defaults inthis obligation, the Company may find an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product salesup to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to the development, design, engineeringand manufacture of polymer systems relating to the development of the product and we will bear the costs relating to the preclinical development of the product. Inaddition, the parties have agreed to complete one or more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines andcosts and time estimates for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive oneyear terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement or a SOW thereunder and thebreaching party fails to cure within ten days notice of a breach, in the event of a monetary breach, or thirty days from receipt of notice of a breach, in the event of anonmonetary breach. Additionally, either party may terminate the Entegris Agreement or any SOW immediately upon written notice of the nonterminating party if apetition for bankruptcy is filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.39On June 14, 2016, we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant by the BIRDFoundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration between U.S. and Israelicompanies in various technological fields for the purpose of joint product development. Projects submitted to the BIRD Foundation are reviewed by evaluatorsappointed by the National Institute of Standards and Technology (NIST) and by the Israel Innovation Authority of the Israeli Ministry of Economy and Industry.The grant is dependent on the execution of a Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us, whichwe are required to execute by September 14, 2016, and which we received an extension until March 17, 2017. We are in the process of finalizing and executed anegotiated CPFA with the BIRD Foundation and Entegris, although there is no guarantee we will be successful in doing so. Pursuant to the terms of the negotiatedCPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant to the terms of the CPFA, we and Entegris will be requiredto repaythe total sum of the grant, linked to the U.S. Consumer Price Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sumgranted by the BIRD Foundation if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion date. TheCPFA will also require that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived from the product, or subsequentproducts, funded by the project. In addition, the CPFA will include a requirement that if the funded product is licensed to a third party 30% of all payments receivedunder the respective license agreement must be paid to the BIRD Foundation in repayment of the grant. Finally, the CPFA will include a requirement that if anyportion of the product funded by the project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, onehalf of the saleproceeds will be applied to the repayment of the grant.In August 2015, we initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine model ahead ofour first planned clinical trial. Complete clinical, biochemical and histology evaluation is being performed by a contract research organization. In December 2015, weannounced that results from this study showed that, while the control group had a 50% death rate, the group that was transplanted with bone marrow thatunderwent our ApoGraft process had no deaths. In addition, with respect to additional parameters, such as clinical signs, weight and histological analysis, notoxicity was found.On April 19, 2016, we entered into a collaboration agreement with Accellta Ltd., or Accellta, whereby Accellta will receive a nonexclusive right to evaluate theimpact of our apoptotic induction based technology on Accellta’s stem cell culturing technologies. The objective of the collaboration with Accellta is to assess theimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightimpact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.impact of our technology which is based on apoptosisinducing agents on Accellta's induced pluripotent stem cell technology. In consideration of the limited rightto test our technology, Accellta has agreed to pay us $75,000. Upon conclusion of the evaluation period, the parties will negotiate, in good faith, the terms of alimited license agreement for our technology, restricted to research only cell technology.On September 12, 2016, we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, single arm, open label clinical trial to evaluate the safety,tolerability and efficacy of functionally selected donor derived mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHDin patients suffering from hematological malignancies that are undergoing allogeneic HSCT. The study is conducted in Rambam Medical Center in Haifa, Israel. Weexpect that the length of the phase I/II, single arm, open label clinical trial will be approximately 18 months. In the study, the graft will be taken from the donorthrough regularly used apheresis and then the cells will be exposed to short incubation with FasL and then undergo washing and centrifugation to remove the FasL.The resulting cells will then be transfused to the patient according to routine myeloablative procedures, or therapeutic modalities, including, but not limited to,chemotherapy, radiotherapy and immunotherapy. We expect to enroll up to 12 patients with various hematological malignancies in need of allogeneic HSCT. Theprimary endpoint is expected to be safety and the secondary endpoint is expected to be efficacy measures including incidence of acute GvHD at day 100.40The study is conducted in a tertiary bone marrow transplant center in Israel. To that end we entered into an agreement with the Rambam Medical Center in Haifa,Israel for the purpose of conducting a clinical trial under approval from the local Institutional Review Board and Israeli Ministry of Health at the medical center.On February 2, 2017 we announced that the first blood cancer patient has been treated in this Phase I/II trial.On February 21, 2017 we announced positive final results from a noninterventional clinical trial of ApoGraft™ in healthy donors. The study’s primary objectivewas to validate the Company's propriety method of stem cell selection by going through the process of production and characterization with ApoGraft™, and wasconducted on samples obtained in collaboration with two medical centers in Israel, The Schneider Children's Medical Center and the Rambam Medical Center. Thestudy included samples from 104 healthy donors of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft usedfor transplantation into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell production fortransplantation with Cellect’s ApoGraft™. The use of the ApoGraft™ resulted in a significant increase in the death of mature immune cells, primarily T lymphocytes,without compromising the quantity and quality of stem cells. The results have shown that the procedure is highly repetitive. The acceptance criteria and batchrelease criteria were all set and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem cells wereintact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed as part of the preclinical package and supportsthe Phase I/II HSCT in blood cancers patients.Future StudiesWe intend to undertake the following actions during the following twelve months:•Conduct the ongoing Phase I/II ApoGraft clinical trial;•Complete the development of the first prototype of the ApotainerTM selection kits;•Develop sterilization methods and ApotainerTM selection kits shelf life;•Produce initial batches of the ApotainerTM selection kits for clinical trials;•Meet FDA and/or European regulatory authorities and submit a trial protocol for a clinical trial using the ApotainerTM selection kit;•Prepare for second indication trial; and•Establish FasL effect on fat derived stem cells in an animal study.Regulatory StatusOur stem cell kits are still under development, and to date we have conducted only animal studies and other preclinical work with respect to our technologyplatform. We have not made any filing with any regulatory authority, other than to applications to support the ongoing and completed clinical trials, seekingapproval or clearance for our Powered by Cellect technology platform or our ApotainerTM selection kits.Based on the views of our scientific advisors and following informal discussions with U.S. and European regulatory authorities, we intend to seek regulatoryapproval of our stem cell kits that we are developing in the United States, Europe and other countries as a combined therapy or Class III “medical device”. Webelieve that being classified as a medical device as opposed to a medicinal product will result in cost savings and reduce time to market.41Future ApplicationsBeyond the use of our Powered by Cellect technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currentlycontemplated, we believe that our technology platform has the potential for a much broader set of usages:•Use of HSCT earlier in the blood cancer treatment protocol. By reducing HSCT toxicity and other complications while increasing efficacy, we believe that ourstem cell selection kits will allow clinicians to undertake HSCT earlier in the blood cancer treatment protocol.•Broadened use of HSCT to nonlife threatening autoimmune disorders. We are considering initiating clinical trials in autoimmune conditions where HSCTwas proven to be beneficial but it was seldom used because of the inherent toxicity. We believe that if we are able to demonstrate significant reduction ofinherent toxicity, this will help make HSCT eligible for treatment of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.•Broadened use of HSCT to organ transplants. It has been known for some time that allogeneic HSCT taken from the same donor enhances transplantationtolerance. This phenomenon has been observed not only in numerous animal models, but in humans as well. For example, several clinical trials have reportedthat kidney transplantation accompanied by a previous HSCT from the same donor was tolerated by the recipient's immune system. We believe that ourproducts could become the major adjunct therapy in any solid organ transplantation to allow tolerance.•Functional selection of cord blood. Stem cells from the cord blood of newborns can be collected immediately after birth and preserved frozen. Currently, themain impediment of HSCT based on stem cells from cord blood is that the amount of cord blood is very limited. In combination with inefficient selectionmethods, the quantity of the collected stem cells is minimal. Therefore, the treatment is usually limited to children having low body mass. Physicians have triedusing double cord blood and other methods which have resulted in new immune related adverse effects. Under ethical review board approval, we examinedmore than 150 samples of cord blood and showed that we can achieve approximately 400 times more stem and progenitor cells from any given samples. Webelieve this may open up the use of cord blood for adult patients in the future.•Stem cell expansion. We already have preliminary indications that our Powered by Cellect technology platform greatly improves the efficiency of the stem cellexpansion process by increasing the initial number of cells that undergoes expansion. Therefore, we believe that companies that currently use stem cellexpansion will have a major advantage if our selection process is integrated as the first step in their manufacturing process.•Tissue and organ engineering. One of the objectives of regenerative medicine is to enable the use of stem cells as a reservoir for organ and tissueengineering and, ultimately, transplantation. The goal is that the patient will be able to accept organs or tissues engineered from foreign stem cells. Theseemerging technologies rely on a sufficient number of stem cells from the donor and the separation of those cells from the donor’s immune system in order toavoid rejection. We believe that our functional stem cell selection process can be the optimal solution for such needs.•Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various indications including immune tolerance, orthopedic and dermatocosmetic indications.Research and DevelopmentOur core technology was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activitiesare focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our Powered by Cellect technology platform,and toxicology testing. Based on these preclinical programs we have began clinical testing of products based on our Powered by Cellect technology platform inhumans. During the years ended December 31, 2014, 2015 and 2016, we incurred $0.9 million, $1.5 million and $2.1 million, respectively (based on the average ofNIS/USD exchange rates reported by the Bank of Israel for each of the three years ended on these respective dates: 2014 – 3.578, 2015 – 3.887, 2016 – 3.84) inexpenses on companysponsored research and development activities.42Raw Materials and SuppliersAlthough most raw materials for the ApotainerTM selection kits we are developing are readily obtainable from multiple sources, we know of only twomanufacturers of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We currently rely on OncologyVentures as our sole source supplier for FasL and Oncology Ventures has provided us with the relevant FasL materials for our phase I/II trials conducted to date.We believe that we will be able to obtain a sufficient supply of FasL for our needs in the foreseeable future, although we do not have a supply agreement in place.Although alternative sources of supply exist, the number of thirdparty suppliers with the necessary manufacturing and regulatory expertise and facilities is limited,and it could be expensive and take a significant amount of time to arrange for alternative suppliers.Any significant delay in the supply of key materials for a preclinical or clinical trial could considerably delay completion of our clinical studies, product testingand potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these key materials after regulatory approval hasbeen obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which wouldimpair our ability to generate revenues from the sale of our product candidates.ManufacturingWe do not own or operate, and currently have no current plans to establish, any manufacturing facilities. We rely on thirdparty outsourcing arrangements forour ApotainerTM selection kits that we are developing as well as other preclinical testing activities. For clinical testing purposes, we intend to rely on thirdpartyoutsourcing arrangements as well. Upon completion of development, we may either continue to rely on thirdparty outsourcing arrangements or build amanufacturing facility either on our own or together with a strategic partner. We are currently working with Entegris to jointly develop the polymer film that will beused for the manufacturing of the ApotainerTM selection kit and may engage Entegris in the future to manufacture the ApotainerTM selection kits for clinical and/orcommercial purposes.CompetitionThe field of regenerative medicine is expanding rapidly, in large part through the development of cellbased therapies and/or devices designed to isolate cellsfrom human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device andbiotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. Most regenerative medicineefforts involve sourcing adult stem and regenerative cells from tissues such as bone marrow, placental tissue, umbilical cord and peripheral blood. However, agrowing number of companies are using adipose tissue as a cell source.With the growing number of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas, includingequity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled and experienced personnel and commercial market share.Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We cannot with anyaccuracy forecast when or if these companies are likely to bring cell therapies to market for indications such as bone marrow transplants which we are also pursuing.43There are currently two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates thehematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete mature hematopoietic cells such as Tcells from the biological sample (negative selection by monoclonal activity against Tcell receptor α&β), resulting in the enrichment of stem and progenitor cells. Thesecond is Cytori, which sells a medical device known as the Celution® System that enables bedside access to adult ADRCs by automating and standardizing theextraction, washing, and concentration of a patient’s own ADRCs for present and future clinical use. While Miltenyi is using morphological markers of stem cells toenrich the stem cell population, Cytori is using the physical properties of cells (in general) through centrifugal force for separation. We believe that bothtechnologies result in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.In addition, since we are developing our ApotainerTM selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with companiesdeveloping treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc., Erytech Pharma SA, Fate Therapeutics Inc.,Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida, Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., orMesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc., or Pluristem.In the general area of cellbased therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are specialtymedical products or biotechnology companies that provide a finished stem cell product that has already undergone stem cell selection including, among others,Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International Inc., Bioheart Inc., Caladarius Biosciences Inc., NuoTherapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation, Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson &Johnson, Kiadis, Mesoblast, Neuralstem Inc., Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that manyof these companies have the potential to become customers in the future of our Powered by Cellect technology platform in order to improve and enhance their inhouse processes.Intellectual PropertyOur success depends in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights of third parties.We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, toestablish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judiciallydetermined to be infringing on any thirdparty patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certainactivities.To protect our proprietary functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patentapplications. These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of use. The fullpublished domain is further described below:•A patent entitled “Method of Inducing Immune Tolerance via Blood/Lymph FlowRestricted Bone Marrow Transplantation” was granted in the United States.If the appropriate maintenance fees are paid, the patent is expected to expire in April 2024 (including a 571 day patent term adjustment granted by the USPTO).•A patent entitled “Methods of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada, Israel, India and Europe (validated inDenmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the patent is expected toexpire in May 2027 in Israel, India and Europe and in September 2029 in the United States (including an 829 day patent term adjustment granted by theUSPTO).•A patent application entitled “Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed as a Patent Cooperation Treaty, or PCT. Thecompany received notice of allowance from the USPTO and expects issuance soon. The application is in national phase in Europe and Israel. If patents areissued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in July, 2031.44•A patent application entitled “Devices and Methods for Selecting ApoptosisSignaling Resistant Cells and Uses Thereof” was filed as a PCT application andis now in national phase in Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. If patents are issued from these applications,and if the appropriate maintenance fees are paid, these patents are currently expected to expire in March, 2033.•A patent application entitled “Activation of Hematopoietic Progenitors by Pretansplant Exposure to Death Ligands” was filed as a PCT application and is nowin national phase in Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Korea, Russia and USA. If patents are issued from these applications, and ifthe appropriate maintenance fees are paid, these patents are currently expected to expire in October 2034.•A patent application entitled “Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor Cells, and Uses Thereof” was filed as aPCT application in June 2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currentlyexpected to expire in 2036.•A patent application entitled “Methods for propagating mesenchymal stem cells (MSC) for use in transplantation” was filed as a PCT application in September2016. If patents are issued from these applications, and if the appropriate maintenance fees are paid, these patents are currently expected to expire in 2036.We cannot assure that any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that anypatents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that the patents of others will not prevent thecommercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicateany of our products, or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone elseof a patent on a technology we are actively using.There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid orinfringing of thirdparty claims. For many of our pending applications, patent interference proceedings may be instituted with the USPTO when more than oneperson files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of theinterference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interferenceproceedings are complex and highly contested, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect toany of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us,the patent could be issued to a competitor rather than to us. Third parties can file postgrant proceedings in the USPTO, seeking to have issued patent invalidated,within nine months of issuance. This means that patents undergoing postgrant proceedings may be lost, or some or all claims may require amendment orcancellation, if the outcome of the proceedings is unfavorable to us. Postgrant proceedings are complex and could result in a reduction or loss of patent rights.There is uncertainty in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through legislationand through courtmade law. The laws of some countries may not sufficiently protect our proprietary rights. Third parties may attempt to oppose the issuance ofpatents to us by initiating opposition proceedings or institute proceedings to revoke the patents. Opposition or revocation proceedings against any of our patentapplication in one country could have an adverse effect on our corresponding issued patents or pending application in another country, e.g. in the United States orIsrael. It may be necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’ patents thathave been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs, divert our efforts and attention from otheraspects of our business, and could have a material adverse effect on our results of operations and financial condition.45In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will notindependently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertiseor disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part,on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technologicalexpertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secretsand proprietary technological expertise will not otherwise become known or be independently discovered by competitors.Environmental MattersWe are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believethat our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws andregulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. Theoperation of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required tocomply with new or more stringent environmental or health and safety laws, regulations or requirements.Government RegulationAny products we may develop and our research and development activities are subject to stringent government regulation. In the United States, theseregulations include the Food Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that govern the clinical and preclinical testing,manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising, and promotion of ourproducts. Product development and approval within this regulatory framework, if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’ delay inapproving or refusal to approve a product. Violations of regulatory requirements also may result in enforcement actions.We are currently in the early clinical development stage and none of our products have been approved for sale in any market.United States Regulatory RequirementsRegulation of Combination ProductsThe FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, i.e.,drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, orbiological and drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling isintended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, oreffect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately thataccording to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required toachieve the intended use, indication, or effect.46The FDA is divided into various “centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluationand Research, or CBER, or the CDRH. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combinationproduct, the FDA must decide which center should be the center with primary jurisdiction or the lead center for the review. FDA regulations require that the FDAdetermine the combination product’s primary mode of action which is the single mode of a combination product that provides the most important therapeutic actionof the combination product. The center that regulates that portion of the product that generates the primary mode of action becomes the lead evaluator. If there aretwo independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based onconsistency with other combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating themost significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead center may consult other centers butstill retain complete reviewing authority, or it may collaborate with another center, by which the center assigns review of a specific section of the application toanother center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the center selected to be thelead evaluator, although the agency has the discretion to require separate applications to more than one center. One reason to submit multiple evaluations is if theapplicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multipleapplications are submitted, each may be evaluated by a different lead center.Because we believe the primary mode of action for our ApotainerTM selection kits for HSCT is that of a medical device, we anticipate that when, and if, we applyfor approval in the United States, our ApotainerTM selection kits will be reviewed by the FDA with CDRH having primary jurisdiction for review and regulation,which is likely to result in the regulatory path usually followed for medical devices. While we have had informal discussions with the FDA concerning our regulatoryplans, we cannot assure you that the FDA would classify our ApotainerTM selection kits as a combination product primarily regulated by the CDRH that mayqualify for the medical devices approval pathway. If the FDA were to classify our ApotainerTM selection kits as a drug, biologic or a combination product primarilysubject to CDER or CBER jurisdiction, or were to prospectively alter the requirements for obtaining approval, the FDA could require us to meet more burdensomeand lengthy approval requirements. Even if such approval could be obtained, we would be subject to more stringent level of postmarket regulation as well.FDA Approval ProcessThe FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical devices we may in the futuremanufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:•product design, preclinical and clinical development and manufacture;•product premarket clearance and approval;•product safety, testing, labeling and storage;•record keeping procedures;•product marketing, sales and distribution; and•postmarketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall ofproducts.47FDA Premarket Clearance and Approval RequirementsUnless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket notification, or 510(k)clearance, or approval of a premarket approval application, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices,considered to have the lowest risk, are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medicaldevices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting ofadverse medical events, and appropriate, truthful and nonmisleading labeling, advertising, and promotional materials (General Controls). Class II devices are subjectto the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (SpecialControls). Manufacturers of most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA,requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatestrisks, such as lifesustaining, lifesupporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantiallyequivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.We believe our ApotainerTM selection kits are likely to be considered as a Class III medical device requiring FDA approval of a PMA.510(k) Clearance PathwayWhen a 510(k) clearance is required, we will be required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent to apreviously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission ofPMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a practical matter,clearance may take longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.Once filed, the FDA has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k) application is arequest for additional data or clarification. Depending on the complexity of the application and the amount of data required, the process may be lengthened byseveral months or more. If additional data, including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.If the FDA issues an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category. At that time, acompany can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the device issufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE determination. The requestshould include a description of the device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Thede novo process has a 60day review period. If the FDA classifies the device into Class II, a company will then receive an approval order to market the device. Thisdevice type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in theClass III category, the device cannot be marketed until the company has obtained an approved PMA.Any modification to a 510(k)cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety oreffectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel scientificissues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission inthe first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with any of our determinations that changes did not require anew 510(k) submission, it could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained.If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease marketing and/or recall the modified device, ifalready in distribution, until 510(k) clearance or PMA approval is obtained and we could be subject to significant regulatory fines or penalties.48PMA Approval PathwayA PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s premarket clearanceand approval requirements. A PMA must generally be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturingand labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. During the review period, the FDA willtypically request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may beconvened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not acceptthe panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of our or our thirdparty manufacturers’ or suppliers’manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met,such as conducting a postmarket clinical trial.New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types ofmodifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type ofinformation as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and maynot require as extensive clinical data or the convening of an advisory panel.Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application foran investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product isdeemed a nonsignificant risk device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to thehealth, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, ortreating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. Clinical trials are subject toextensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, forthe relevant clinical trial sites and must comply with FDA regulations, including, but not limited to, those relating to good clinical practices. To conduct a clinicaltrial, we also are required to obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacyand human subject protection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks tostudy subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacyof the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinicalstudy must be approved by a local ethics committee and in some cases, including studies with highrisk devices, by the ministry of health in the applicable country.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, the Medical Device Reportingregulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory requirements include:•product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;49•QSR, which requires manufacturers, including thirdparty manufacturers, to follow stringent design, testing, control, documentation and other qualityassurance procedures during all aspects of the design and manufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or offlabel use or indication;•clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of ourcleared devices;•approval of product modifications that affect the safety or effectiveness of one of our approved devices;•postapproval restrictions or conditions, including postapproval study commitments;•postmarket surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for thedevice;•the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation ofgoverning laws and regulations;•regulations pertaining to voluntary recalls; and•notices of corrections or removals.Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC, andby state regulatory and enforcement authorities. Promotional activities for FDAregulated products of other companies have been the subject of enforcement actionbrought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the United States,which can change rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved oruncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. It is also possible that otherfederal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproveduse, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.Failure by us or by our thirdparty manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDAor other regulatory authorities, which may result in sanctions including, but not limited to:•untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;•customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;•operating restrictions or partial suspension or total shutdown of production;•refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;•withdrawing 510(k) clearances or PMA approvals that have already been granted;•refusing to grant export approval for our products; or•criminal prosecution.Human Cells, Tissues, and Cellular and TissueBased Products RegulationUnder Section 361 of the U.S. Public Health Service Act, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissuebased products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established a unified registrationand listing system for establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging, and distribution; andother procedures to prevent the introduction, transmission, and spread of communicable diseases.50The HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the degree ofmanipulation, whether the product is intended for a homologous function, whether the product has been combined with noncellular or nontissue components, andthe product’s effect or dependence on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissuebased products have been onlyminimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or haveany effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured products, and adopt and implementprocedures for the control of communicable diseases. If one or more of the above factors has been exceeded, the product would be regulated as a drug, biologicalproduct, or medical device rather than an HCT/P.While we do not currently intend to rely on the regulation of HCT/Ps under Part 1271, if we do so in the future, the FDA may disagree with this position orconclude that we do not meet the applicable definitions and exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would needto expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of ourproducts, if approved, will depend, in part, on the extent to which the costs of the products will be covered by thirdparty payors, including government healthprograms such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverageis approved. Thirdparty payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs fora particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studiesin order to demonstrate the medical necessity and costeffectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatoryapprovals. Our products may not be considered medically necessary or costeffective. A payor's decision to provide coverage for a drug product does not implythat an adequate reimbursement rate will be approved. Thirdparty reimbursement may not be sufficient to enable us to maintain price levels high enough to realizean appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort.Thirdparty payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and costeffectiveness ofmedical products and services, in addition to their safety and efficacy. If these thirdparty payors do not consider our products to be costeffective compared toother available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient toallow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of governmentpaid health care costs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions withexisting controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our netrevenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after areimbursement price has been agreed. Some countries may require the completion of additional studies that compare the costeffectiveness of a particular productcandidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug producton the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure onhealth care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of newproducts. In addition, in some countries, crossborder imports from lowpriced markets exert competitive pressure that may reduce pricing within a country. Therecan be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.51The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail toprovide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continueto increase the pressure on drug pricing. Coverage policies, thirdparty reimbursement rates and drug pricing regulation may change at any time. In particular, thePatient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drugproducts, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatorydiscounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Antikickback and false claims lawsIn addition to FDA restrictions on marketing of biopharmaceutical products, several other types of state and federal laws have been applied to restrict certainmarketing practices in the biopharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcareprogram antikickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return forpurchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Violations of the antikickback statute are punishable by imprisonment, criminal fines, civil monetarypenalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harborsprotecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, orknowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free products to customers with the expectation that the customers would bill federal programs for theproduct. In addition, certain marketing practices, including offlabel promotion, may also violate false claims laws. The majority of states also have statutes orregulations similar to the federal antikickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or,in several states, apply regardless of the payor.Other RegulationsWe may from time to time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory andmanufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, microorganisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the U.S.Occupational Safety and Health Act, the U.S. Toxic Test Substances Control Act and the U.S. Resource Conservation and Recovery Act. Although we believe thatour safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, there can be noassurances that accidental contamination or injury to employees and third parties from these materials will not occur.52Foreign Regulatory RequirementsInternational sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required toobtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general managerof the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implementedpursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. Theseregulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certaincircumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeingethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project todetermine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for therights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion ofour clinical studies in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conductour clinical trials, and in most cases, from the Israeli Ministry of Health.The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting formedical devices. Each European Union member state has implemented legislation applying these directives and standards at a national level. Other countries, suchas Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. Devices that comply with therequirements of the laws of the relevant member state applying the applicable European Union directive are entitled to bear a CE mark and, accordingly, can bedistributed throughout the member states of the European Union as well as in other countries, such as Switzerland and Israel, that have mutual recognitionagreements with the European Union or have adopted the European Union’s regulatory standards.The method of assessing conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be Class I,Class IIa, Class IIb or Class III. Normally, the method involves a combination of selfassessment by the manufacturer of the safety and performance of the device,and a thirdparty assessment by a Notified Body, usually of the design of the device and of the manufacturer’s quality system. A Notified Body is a privatecommercial entity that is designated by the national government of a member state as being competent to make independent judgments about whether a devicecomplies with applicable regulatory requirements. An assessment by a Notified Body in one country with the European Union is required in order for a manufacturerto commercially distribute the device throughout the European Union. In addition, compliance with ISO 13485 issued by the International Organization forStandardization, among other standards, establishes the presumption of conformity with the essential requirements for CE marking. Certification to the ISO 13485standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, production, installation andservicing of medical devices and the design, development and provision of related services.53Sales and MarketingWe intend to launch a business development campaign during 2017. Interim results from the ongoing Phase I/II study will establish safety profile of ourApograft and will validate our platform technology. These results will qualify our technology for out licensing to companies interested in improving theirmanufacturing process of adult tem cells based products. To address these plans we intend to open up business development offices and hire a vice president forbusiness development in United States. The recruitment of the team and the data from the clinical trials is expected to converge and allow the initiation of series oflicenses on a non exclusive basis to various stem cells based companies.C.Organizational StructureWe currently have one wholly owned subsidiary: Cellect Biotherapeutics, which is incorporated in the State of Israel.D.Property, Plant and EquipmentOur headquarters is currently located in Kfar Saba, Israel and consists of approximately 4,360 square feet of leased office space under a lease until October 14,2020, with an option to terminate the agreement on October 14, 2018. In addition, we hold options to extend the lease period until October 14, 2022 and until October14, 2024. We may require additional space and facilities as our business expands.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report onForm 20F. This discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current expectations that involverisks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this annual report in Form 20F. We report financial information under IFRS asissued by the International Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accountingprinciples in the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this annual report on Form 20F for the period endedon December 31, 2016 are translated using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016, and U.S. dollartranslations of NIS amounts presented in this annual report on Form 20F for the period ended on December 31, 2015 are translated using the rate of NIS 3.902 to$1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.5.AOperating ResultsTo date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least. As ofDecember 31, 2016, we had an accumulated deficit of NIS 35.7 million (approximately $9.3 million). Our financing activities are described below under “FinanceExpense and Income.”Operating ExpensesOur current operating expenses consist of two components – research and development expenses, and general and administrative expenses.54Research and Development Expenses, netOur research and development expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,and other related research and development expenses.The following table discloses the breakdown of research and development expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll1,5552,7393,711966Subcontractors146538534139Patent registration169326409106R&D related purchases2087701,676436Sharebased payment51252325366Professional services4007461,044271Other expenses682516291643,0585,8938,2562,148* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, and other general andadministrative expenses.The following table discloses the breakdown of general and administrative expenses:Year ended December 31,2014201520162016NISUSD*(in thousands)Payroll8501,0242,994779Professional services7621,3662,074539Director fees26935831883Office expense161235466121Sharebased payment2867951,299338Other expenses163426817212Total2,4914,2047,9682,072* USD presented as convenience translation using 31.12.16 NIS/USD rate of: 3.845 NIS.55Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 to the year ended December 31, 2014Results of OperationsDecember 31,December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Research and development expenses, net3,0585,8938,2567861,5102,147General and administrative expenses2,4914,2047,9686401,0772,072Other income(280)(73)Operating loss5,54910,09715,9441,4262,5874,146Finance expense (income), net275(627)119(163)Total comprehensive loss5,55110,17215,3171,4272,6063,983Loss attributable to holders of Ordinary Shares5,55110,17215,3171,4272,6063,983* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Research and Development Expenses, netOur research and development expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increaseof NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year ended December 31, 2015. The increasewas primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million) from R&D related expenses as part of the preparation for the clinical trial andfor the lab and to an increase of salaries and related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in thecompany’s activities resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.Our research and development expenses for the year ended December 31, 2015 amounted to NIS 5.9 million (approximately $1.5 million) compared to NIS 3.0million (approximately $0.8 million) for the year ended December 31, 2014. The increase was primarily attributable to an increase of expenses related to thirdpartypreclinical consultants and other expenses related to conducting preclinical trials in an amount of $0.33 million and to an increase of salaries and related personnelexpenses in an amount of $0.27 million reflecting the growth in the company activities resulting from an increase in the number of employees engaged in researchand development related activities from five to nine.General and Administrative ExpensesOur general and administrative expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31, 2015. The increase resulted primarilyfrom an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based compensation reflecting the growth in the company activities resultingfrom an increase in the number of employees and an increase of NIS 0.7 million (approximately $0.18) in professional services du to increase in legal and investor andpublic relations expenses after the IPO.Our general and administrative expenses for the year ended December 31, 2015 amounted to NIS 4.2 million ($1.0 million) compared to NIS 2.5 million ($0.6 million)for the year ended December 31, 2014. The increase resulted primarily from an increase of $0.13 million in sharebased compensation expenses, an increase of payrollin an amount of $0.03 million reflecting the growth in the company activities resulting from an increase of payroll to our employees, an increase of $0.1 million inprofessional services and an increase of $0.05 million in travel and conference expenses.56Operating LossAs a result of the foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared to anoperating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.9 million (approximately $1.5 million), or58%.As a result of the foregoing, our operating loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million), as compared to anoperating loss of NIS 5.5 million (approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.5 million (approximately $1.2 million), or 82%.Finance Expense and IncomeFinance expense and income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms thatwere provided to investors who participated in certain fund raising rounds, and exchange rate differences.We recognized net financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial expense ofNIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due to the change in the fair value of the tradablewarrant granted on the IPO.We recognized financial expenses, net of NIS 0.075 million ($0.02 million) for the year ended December 31, 2015 compared to financial expenses, net of NIS 0.002(less than $0.001 million ) for the year ended December 31, 2014. Financial expenses, net in 2015 were derived mainly from revaluations of foreigncurrencylinkedcash balances.Total ComprehensiveLossAs a result of the foregoing, our loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared to NIS 10.1 million(approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.1 million (approximately $1.3 million), or 51%.As a result of the foregoing, our loss for the year ended December 31, 2015 was NIS 10.1 million (approximately $2.6 million) , as compared to NIS 5.5 million(approximately $1.4 million) for the year ended December 31, 2014, an increase of NIS 4.6 million (approximately $1.2 million), or 83%.Critical Accounting Policies and EstimateOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared inaccordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses duringthe reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are morefully described in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the mostcritical for fully understanding and evaluating our financial condition and results of operations.Sharebased payment transactionsFrom time to time we grant to our employees and other service providers remuneration in the form of equitysettled sharebased instruments, such as options topurchase ordinary shares. The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. Thefair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of thegoods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equityinstruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.57The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which theperformance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to the award. No expense isrecognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective ofwhether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. When we change the conditions ofthe award of equitysettled instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases the totalfair value of the remuneration granted or benefits the other service provider according to the fair value on date of change. Cancellation of the award of equitysettledinstruments is accounted for as having vested at the cancellation date and the expense not yet recognized in respect of the award is recognized immediately.However, if the cancelled grant is replaced by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both beaccounted for as a change to the original award, as described above.Option ValuationsThe determination of the grant date fair value of options using an option pricing model (we utilize the BlackScholes model) is affected by estimates andassumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of theoptions, share option exercise and cancellation behaviors, riskfree interest rates and expected dividends, which are estimated as follows:• Volatility. The expected share price volatility is based on the historical volatility in the trading price of our ordinary shares as well as comparable companies on theTASE and benchmarks of related companies.• Expected Term. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to beoutstanding.• RiskFree Rate. The riskfree interest rate is based on the yield from Israeli government bonds with a term equivalent to the contractual life of the options.• Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we use an expected dividend yield of zero.585.BLiquidity and Capital ResourcesOverviewFrom January 2016 through December 31, 2016, we have funded our operations principally with NIS 40 million (approximately $10.4 million) from the issuance ofOrdinary Shares and warrants. As of December 31 2016, we had NIS 40 million (approximately $8.0 million) in cash and cash equivalents including short termdeposits and Marketable securities.The table below presents our cash flows:Year ended December 31,2014201520162014*2015*2016*(in thousands of NIS)(in thousands of USD)Operating activities(4,399)(7,710)(14,412)(1,131)(1,975)(3,748)Investing activities(11,451)3,175(18,012)(2,944)814(4,684)Financing activities13,9336,39634,9243,5831,6399,083Net increase in cash and cash equivalents(1,922)1,7912,366(494)459615* USD presented as convenience translation using year end 2016, 2015, 2014 NIS/USD rate of: 3.845 NIS, 3.902 NIS, 3.889 NIS respectively.Operating ActivitiesNet cash used in operating activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used inoperating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. Compared with net cash used in operatingactivities was NIS 4.4 million (approximately $1.1 million) for the year ended December 31, 2014, The increases in such periods are primarily due to increases inongoing research costs and increases in the number of employees.Investing ActivitiesNet cash used in investing activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in Short term deposits.Net cash provided in investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of Marketable securities measured atfair value through profit and loss.Net cash used in investing activities of NIS 11.4 million (approximately $2.9 million) during 2014 primarily reflects invest in Marketable securities measured at fairvalue through profit and loss.Financing ActivitiesNet cash provided by financing activities in the years ended December 31, 2016, 2015 and 2014 consisted of NIS 34.9 million (approximately $9.1 million) and NIS6.4 million (approximately $1.6 million) and NIS 14.0 million (approximately $3.6 million) respectively, of net proceeds, mainly from the issuance of ordinary shares andwarrants.In March 2016, we issued an aggregate of 5,783,437 Ordinary Shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36) per share. Inaddition, we issued warrants to purchase up to 1,927,801 Ordinary Shares, which have an exercise price of NIS 2.1 (approximately $0.54) per warrant . These warrantswill expire in March 7, 2018.59In July 29, 2016, we issued an aggregate of 1,292,308 ADS's (approximately 25,846,160 Ordinary Shares) pursuant to our initial public offering, at a price of $6.5per ADS.Current OutlookWe have financed our operations to date primarily through proceeds from issuance of our Ordinary Shares. We have incurred losses and generated negativecash flows from operations since July 2013. We have never generated any revenue from the sale of products and we do not expect to generate revenues from sale ofour products until at least 2018.We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter of 2018, however,we expect that we will require substantial additional capital to support the mass production of our products.In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds soonerthan planned. Our future capital requirements will depend on many factors, including:●the progress and costs of our research and development activities;●the costs of manufacturing our Apograft product;●the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;●the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and●the magnitude of our general and administrative expenses.Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain thatadditional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as agoing concern.5.CResearch and Development, Patents and LicensesSee above, under Item 5A – “Operating Results”.605.DTrend InformationNot applicable5.EOffBalance Sheet ArrangementsWe currently do not have any offbalance sheet arrangements.5.FContractual ObligationsThe following table summarizes our significant contractual obligations at December 31, 2016:TotalLess than1 year13 years45 yearsMore than5 years(in thousands)Operating Lease Obligations in NIS936512424Operating Lease Obligations in $243133110The contractual obligation in respect of government grants presented above is based on our estimation regarding expected revenues, thus there is no certainty thatthe liability will be settled in 13 years as stated above.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementWe are managed by a board of directors, which is currently comprised of six members, and our executive officers. Each of our executive officers is appointed byour board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/oCellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel 44425.NameAgePositionKasbian Nuriel Chirich59Chairman of the Board of DirectorsDr. Shai Yarkoni59Chief Executive Officer and DirectorEyal Leibovitz56Chief Financial OfficerYaron Pereg43Chief Development OfficerDr. Amotz Nechushtan57Vice President of Research and DevelopmentAbraham Nahmias(1)(2)(3)62DirectorDr. Ruth Ben Yakar47DirectorYuval Berman(1)(2)(3)51External DirectorDavid Grossman(1)(2)(3)42External DirectorMichael Berelowitz72Director(1)Indicates independent director under NASDAQ rules.(2)Member of our Audit Committee.(3)Member of our Compensation Committee.Kasbian Nuriel Chirich cofounded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors since 2013 and of oursubsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and business expertise with innovative ventures throughoutEast Africa and Israel. Mr. Chirich is a real estate developer and was previously the founder and general manager of Leadcom Kasbian, which is credited, amongother thing, with establishing the national television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as theHonorary Consul of Tanzania in Israel.61Dr. Shai Yarkoni cofounded our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and of oursubsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical industry. Dr. Yarkoni is a founder of Sne, anIsraeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni has also been the Chief Executive Officer and Chairman of GASR Biotechnology, alife sciences consulting and investing firm. From 2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center forbiotechnology and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of TargetIn Ltd., a developer of therapeutic recombinantproteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical, a tissue therapeutics company, and was anattending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem, Israel,and is a board certified OB/GYN. Dr. Yarkoni is the author of over 60 scientific papers and inventor of approximately 20 patents.Eyal Leibovitz has served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management, finance,investor relations, mergers and acquisitions business development in international pharma and biotech companies. From September 2007 to October 2011, Mr.Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011 to December 2015 as the Chief Financial Officer of Ntrig Ltdand as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successfullarge scale fund raising (including PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of Ntrig Ltd to Microsoft. Mr.Leibovitz hold a BBA degree from the City University of New York.Dr. Yaron Pereg has served as our Chief Development Officer since January 1, 2017. From 2011 to 2016, Dr. Pereg served in various roles BioLineRx(NASDAQ:BLRX) with the most advanced one being its Senior Director of Oncology. Prior to his position with BioLineRx, from 2007 to 2010 Dr. Pereg held researchand development positions in Genentech Inc., a biotechnology corporation and member of the Roche Group (ADR: RHHBY) and from 2010 to 2011 he held similarpositions in the medicaldevice startup company Gluesense. Dr. Pereg has worked in the innovative biopharmaceutical industry for over a decade, leadingworldwide nonclinical and clinical programs of multiple drug development projects managing multidisciplinary teams and multimillion dollar budgets. He has adiverse experience in pharma and biotech R&D arena including preclinical, regulation, clinical, CMC and operational activities of drug development in the field ofoncology.Dr. Amotz Nechushtan has served as Vice President of Research and Development since May 2016. Prior to that, since July 2015 until May 2016, he served asVice President of Product Development. Prior to joining the Company, Dr. Nechushtan served as Chief Executive Officer of Iluten Ltd from 2010 until 2013. Beforethat he served as Vice President of Research and Development of Targetin Ltd., Pharmaseed Ltd. and Quantomix Ltd. in the years 2001 to 2004. Dr. Nechushtanholds B.Sc., M.Sc. and Ph.D in biochemistry, all from the Hebrew University followed by 5 years postdoc at the NIH Bethesda, Maryland.Abraham Nahmias has served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of NahmiasGrinberg C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public companies includingRotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD) and Nano Dimension Ltd. (TASE: NNDM). Mr. Nahmias holds a B.A. degree inEconomics and Accounting from Tel Aviv University, and has had a C.P.A. license since 1982.62Dr. Ruth Ben Yakar has served as a member of our board of directors since July 2014. She has over 22 years of experience in the biomedical field, including 14years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory development, and research activities.Since December 2014 Dr. Ben Yakar has served as Chief Executive Officer of BioSight Ltd., a private Israeli drug development company active in the field of oncologyas a director on the board of directors at SHL Telemedicine (SHLTN: SW), and as a consultant to several biotech companies. From 2012 until 2014, Dr. Ben Yakarserved as the Chief Executive Officer of Procognia (TASE: PRCG), a public biotech company traded on the TASE, and from 2012 until 2015 as a director at IsraelAdvanced Technology Industries. Prior to that, from 2011 until 2012, Dr. Ben Yakar was the Chief Executive Officer of Thrombotech, a biotechnology companyestablished around thrombotic research at Hadassah Medical Center, where she led a multicenter clinical trial and led the company towards acquisition by DPharmLtd. (TASE: DPRM). Prior to that, from 2009 until 2011, she served as the Chief Business Officer of YEDA Research and Development, the technology transfercompany of the Weizmann Institute of Science, or WIS, responsible for the commercialization of the WIS technologies, and a Vice President in several biotechcompanies. Dr. Ben Yakar holds a PhD cum laude in molecular cell biology from the WIS. Her research, in the field of oncology, yielded several prestigiouspublications and awards.Yuval Berman has served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our auditcommittee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd., a business consultancy firm based inTel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and underwriting units of Poalim Capital Markets & Investments Ltd. andOmega Investments Ltd., a publicly traded financial services group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously servedon the board of directors of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law andEconomics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman is a member of the Israeli bar.David Grossman has served as a member of our board of directors since November 2014. Mr. Grossman serves as one of our external directors and serves on ouraudit committee, and compensation committee. Since 2015, Mr. Grossman has served on the board of directors of Amnis Therapeutics Ltd. (TASE: AMNS) (formerlyITGI Medical Ltd.) and since 2014 he is the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL from 2009until 2014, and was also a member of the board of directors from 2009 until 2013. He served on the audit committee of Green Fields Capital Ltd. from August 2011 toAugust 2014. He also served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served asVice President of Sahar Investments Ltd. (TASE: ENLT; formerly SAIN), which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was aSenior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards ofpublic companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014,Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA inBusiness Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.Michael Berelowitz has served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been selfemployed as abiopharmaceutical consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs in theSpecialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning as a Medical Director in the Diabetes ClinicalResearch team and then assuming positions of increasing responsibility. Prior to 1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serveson the board of directors of Recro Pharma Inc., a NASDAQlisted clinical stage specialty pharmaceutical company, and previously served as a director of OramedPharmaceuticals Inc. from June 2010 until August 30, 2016.. Among his public activities, Dr. Berelowitz has served on the board of directors of the AmericanDiabetes Association, the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State Council onDiabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism and Endocrinology, Reviews in Endocrineand Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and coauthored more than 100 peerreviewed journal articles and book chapters in theareas of pituitary growth hormone regulation, diabetes and metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisionsof Endocrinology and Metabolism at SUNY Stony Brook and Mt. Sinai School of Medicine in New York.63Our Scientific Advisory TeamOur Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of Biochemistry, infectious diseases and medical research.Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Our ScientificAdvisory Team members are entitled, according to their work and contribution to us, to either hourly or monthly consulting fees.Our Scientific Advisory Team is comprised of the following members:Professor Dov Zipori is the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based on Prof.Zipori’s scientific research.Dr. Susan Alpert has served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and C.R. BARD Inc.Professor Robert Negrin is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood and MarrowTransplant Program at Stanford University.Professor John F. DiPersio is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone marrow transplantations,leukemia, gene therapy and GvHD.Professor Francesco Dazzi is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College London.Professor Dazzi is also a member of editorial boards at leading scientific journals.Family RelationshipsThere are no family relationships between any members of our executive management and our directors.Arrangements for Election of Directors and Members of ManagementThere are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management orour directors were selected.B.CompensationThe aggregate compensation expensed, including sharebased compensation and other compensation expensed by us and our subsidiaries to our directors andexecutive officers with respect to the year ended December 31, 2016 was $1.65 million.The table below sets forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during or withrespect to the year ended December 31, 2016, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary,bonuses, equitybased compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking toprovide such compensation.64Name and Principal PositionBase Salary(NIS inthousands)(includingsocialallowances)VariableCompensation(1)(NIS inthousands)EquityBasedCompensation(2)(NIS inthousands)Other(NIS in thousands)Total(3)(NIS inthousands)Conveniencetranslationinto USD in thousands (6)Dr. Shai Yarkoni,Chief Executive Officer & Director1,59835024352,196571Ronen Twito,Deputy Chief Executive Officer &Chief Financial Officer(4)1,25930089552,459640Moran Miron,Former Vice President Researchand Development(5)187218949Kasbian Nuriel Chirich,Chairman of the Board ofDirectors558100314693180Dr. Amotz Nechushtan,Vice President Research andDevelopment4661011568148Dr. Yaron Pereg, Chief DevelopmentOfficer(7)116412031(1)Amounts reported in this column refer to variable compensation such as commission, incentive and bonus payments as recorded in our financial statements forthe year ended December 31, 2016.(2)Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2016 with respect to equitybasedcompensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph d of Note 14 to our audited consolidatedfinancial statements, which are included in this prospectus.(3)All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.(4)Mr. Twito served as our prior Deputy Chief Executive Officer and Chief Financial Officer from November 2015 to January 1, 2017.(5)On May 15, 2016, Ms. Miron ceased to serve as Vice President Research and Development.(6)Calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S. dollar per NIS 3.845.(7)Dr. Yaron Pereg employed in our company Since October 26, 2016 as Senior Director of Development and Operations and in Januray 26, 2017 appointed to ChiefDevelopment Officer.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to each of our directors, Mr. Chirich, Dr. Yarkoni, Mr. Nahmias, Dr. Ben Yakar, Mr.Berman and Mr. Grossman and to one former director. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarterfrom the date of grant over three years in twelve equal installments.On December 7, 2015, we granted options to purchase 2,658,246 ordinary shares to Mr. Twito, our Deputy Chief Executive Officer and Chief Financial Officer. Theoptions are exercisable at NIS 1.286 per share and expire on December 7, 2025. The options vest each quarter from the date of grant over three years in twelve equalinstallments.65On March 8, 2016, as part of a private placement, we granted 23,980 options to purchase 23,980 ordinary shares to Mr. Twito, our Deputy Chief Executive Officerand Chief Financial Officer, and 95,923 ordinary shares to Mr. Chirich, our chairman of the board of Directors, which was approved by the shareholders in June 2016.The options are exercisable at NIS 2.1 per share and expire on March 7, 2018.On May 31, 2016, and On November 29, 2015 we granted 70,000 and 80,000 options respectively to purchase 70,000 and 80,000 ordinary shares to Dr. AmotzNechushtan, our Vice President Research and Development. The options are exercisable at NIS 1.68 and 1.29 per share and expire on May 30, 2026 and on November28, 2025 respectivelyEmployment Agreements with Executive OfficersOur executive officers are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods ofvarying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive basesalary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.However, the enforceability of the noncompetition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Relatedto Our Operations in Israel.”For a description of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.Chairman of the Board of Directors Agreement with Kasbian Nuriel ChirichOn April 30, 2013, we, entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich employing him on a parttime basis as Chairman ofthe board of directors. Under the agreement, Mr. Chirich is entitled to a salary of NIS 10,000 per month commencing July 1, 2013, and increasing in NIS 5,000increments up to NIS 20,000 per month on each capital raise of over $2 million. Mr. Chirich is gross salary in 2013 was NIS 20,000 per month. In addition, Mr. Chirichis entitled to a onetime bonus of 0.75% of the amount received in a capital raise if such amount raised is between $1 million and $2 million or 1% of the amountreceived in a capital raise if such amount raised is over $2 million. As a result of our capital raise of NIS 15,000,000 in May 2014, Mr. Chirich was paid NIS 166,000 andas a result of our capital raise in 2015, Mr. Chirich became entitled to NIS 34,000. Mr. Chirich is entitled to an allocation to a manager’s insurance policy and studyfund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. The agreement has a term of 36 months and willbe renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable by either party upon 180 days priorwritten notice and is terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Mr. Chirich for his service on the board of directors. The options are exercisableat NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chairman of the board of directors, Mr. Kasbian NurielChirich, for an additional 36 month term. Our shareholders approved the Chirich Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the termsof the Chirich Amendment, we will employ him on a parttime basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the Company.Pursuant to the Chirich Amendment, Mr. Chirich will be entitled to a salary of NIS 30,000 per month and increasing to NIS 35,000 per month on a successful capitalraise of over $7.5 million in the aggregate. Mr. Chirich is currently being paid a gross salary of NIS 20,000 per month. Mr. Chirich is entitled to an allocation to amanager’s insurance policy and study fund. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses. Inaddition, Mr. Chirich will be eligible to receive an annual bonus of up to NIS 100,000 for the year 2016, according to the objectives agreed by our compensationcommittee, our board of directors and subject to approval of a shareholder’s meeting, as follows: (1) if we raise between $4 million and $10 million in the aggregate,Mr. Chirich will be entitled to a bonus of NIS 50,000, (2) if we raise over $10 million, Mr. Chirich will be entitled to a bonus of NIS 100,000, and (3) if we enter into atransaction (including a joint venture or other similar transaction) with a value of a minimum of $2 million, Mr. Chirich will be entitled to a bonus of NIS 25,000,provided, however that in no event shall Mr. Chirich be entitled to a bonus in excess of NIS 100,000. In addition, Mr. Chirich will be entitled to an allocation to amanager’s insurance policy, pension plan, study fund and disability insurance. Mr. Chirich is also entitled to reimbursement for reasonable outofpocket expenses,including travel expenses. The agreement shall have a term of 36 months and will be renewable for additional terms of 36 months subject to any approvals that arerequired by law. The agreement is terminable by either party upon 180 days prior written notice and is terminable immediately by Cellect for cause as such term isdefined in the employment agreement.66Employment Agreement with Shai YarkoniOn April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on fulltime basis as Chief Executive Officer of the Company.Under the agreement, commencing May 1, 2013, Dr. Yarkoni is entitled to a salary of NIS 45,000 per month, subject to cost of living increases. In addition, Dr.Yarkoni’s salary will increase by 10% on each capital raise of over $2 million, up to a maximum increase of 20%. Dr. Yarkoni received monthly salary of NIS 54,450. Inaddition, under the agreement, upon the completion of the reverse merger that was completed on June 30, 2013, Dr. Yarkoni was entitled to a onetime bonus of NIS100,000 which was paid to him during 2013. In addition, Dr. Yarkoni is entitled to a further onetime bonus of 0.75% of the amount received in a capital raise if suchamount raised is between $1 million and $2 million or 1% of the amount received in a capital raise if such amount raised is over $2 million. In December 2013, Dr.Yarkoni was paid a bonus of NIS 100,000 for the amounts raised during 2013 and as a result of our capital raise of NIS 15,000,000 in May 2014, Dr. Yarkoni was paidNIS 166,000 and as a result of our capital raise in 2015, Dr. Yarkoni became entitled to NIS 216,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurancepolicy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobilephone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by CellectBiotherapeutics for cause as such term is defined in the employment agreement.On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options areexercisable at NIS 1.40 per share and expire on September 8, 2024. The options vest each quarter from the date of grant over three years in twelve equal installments.On May 6, 2015, a special meeting of shareholders approved the payment of NIS 100,000 to Dr. Yarkoni for his activities in 2014. In addition, at the same meeting,our shareholders approved the targets for the payment of an annual bonus of up to five months’ salary for the year 2015 to Dr. Yarkoni. Based on his performance,Dr. Yarkoni was granted a bonus equal to four months’ salary during the 2015 fiscal year.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable atNIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.On July 24, 2016, we entered into an extension and amendment to the employment agreement of our Chief Executive Officer, Dr. Shai Yarkoni or the YarkoniAmendment. Our shareholders approved the Yarkoni Amendment at our shareholder meeting held on July 24, 2016. Pursuant to the terms of the Yarkoni Amendment,we intend to extend the term of his agreement for an additional 36 months, employing him on a fulltime basis as our Chief Executive Officer. Pursuant to the YarkoniAmendment, Dr. Yarkoni’s monthly salary will be increased from NIS 54,450 to NIS 60,000, with a potential raise of such monthly salary to NIS 70,000 in the event of asuccessful capital raise of $7.5 million. In addition, Dr. Yarkoni will be entitled to an allocation to a manager’s insurance policy and study fund, as well asreimbursement for reasonable outofpocket expenses, including travel expenses and a company car and mobile phone. In addition, Dr. Yarkoni may be eligible for abonus equal to up to five months’ salary for the year 2016, according to the objectives agreed by our compensation committee, our board of directors, and subject toapproval of a shareholder’s meeting, including the following: (1) if we raise $4 million or over and up to $12 million in the aggregate, Dr. Yarkoni will be entitled to abonus of two to four months’ salary and if we raise more than $12 million in the aggregate, Dr. Yarkoni will be entitled to a bonus of five months’ salary, (2) if wesuccessfully initiate our clinical trial, and after the recruitment of the sixth patient, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (3) if we successfullylist our ADSs on Nasdaq, Dr. Yarkoni will be entitled to a bonus of one month’s salary, (4) if we enter into a transaction (including a joint venture or other similartransaction) with a value of a minimum of $2 million Dr. Yarkoni will be entitled to a bonus of two months’ salary, and (5) upon the recommendation of the Board Dr.Yarkoni will be entitled to a bonus of one month’s salary, provided, however, that in no event shall Dr. Yarkoni be entitled, in the aggregate, to a bonus in excess offive months’ salary. The agreement has a term of 36 months and is terminable by either party upon 180 days prior written notice and terminable immediately by us forcause as such term is defined in the employment agreement.67Services Agreement with Dr. Ruth Ben YakarIn September 2014, a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar willprovide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for a monthly fee of NIS 6,000. In April2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to NIS 14,000, reflecting a maximum of 40 hours per month of services, effectiveNovember 15, 2014.In addition, in September 2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The optionsvest on a quarterly basis in equal installments over 36 months and expire on September 28, 2025.On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar for her service on the board of directors. The options areexercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.Employment Agreement with Eyal LeibovitzOn October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on fulltime basis as Chief Financial Officer of the Company.Under the agreement, commencing December 31, 2016, Mr. Leibovitz is entitled to a salary of NIS 52,500 per month. In addition, Mr. Leibovitz will be entitled to anannual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the Compensation Committee and the Board ofDirectors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitledto reimbursement for reasonable outofpocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobilephone. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such termis defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between December 31, 2016 or in case of terminationof the employment with the company, option shall vest twelve months following the termination date. In addition, upon the earlier of one year from the date of theoption grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to anadditional option to purchase 107,584 ordinary shares.68Employment Agreement with Dr. Yaron PeregOn September 8, 2016, we entered into an employment agreement with Dr. Yaron Pereg, employing him on fulltime basis as Senior Director of Development andOperations, effective as of October 26, 2016. Under the agreement, Dr. Pereg is entitled to a salary of NIS 43,000 per month for the first 3 months of employment andNIS 45,000 per month for each month thereafter. In addition, Dr. Pereg will be entitled to an annual bonus equal up to 2 months’ salary based upon the completion ofcertain targets to be determined by the Board of Directors. Dr. Pereg is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Pereg is alsoentitled to reimbursement for reasonable outofpocket expenses, including travel expenses, a company car and mobile phone. The agreement is terminable by eitherparty upon 30 days prior written notice and terminable immediately by Cellect Biotherapeutics for cause as such term is defined in the employment agreement.In addition, pursuant to the employment agreement, we granted to Dr. Pereg options to purchase 100,000 ordinary shares at an exercise price which will bedeterment according to the Board decision and according to the company options plan.On January 1, 2017, the Company and Dr. Pereg amended the terms of his employment agreement, whereby Dr. Pereg was employed to serve as ChiefDevelopment Officer. In addition, Dr. Pereg’s monthly salary was amended to NIS 45,000 per month and Dr. Pereg was granted options to purchase 250,000 ordinaryshares at an exercise price of NIS 0.631 per share. The options vest on a quarterly basis in equal installments over 36 months and expire on the earliest between: (i)December 31th 2026; or, (ii) in case of termination of the employment with the Company, Options will be exercisable within a period of ninety days after the date ofsuch termination.C.Board PracticesIntroductionBoard of DirectorsUnder the Companies Law and our articles of association, our board of directors directs our policy and supervises the performance of our Chief ExecutiveOfficer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executiveofficers are responsible for our daytoday management and have individual responsibilities established by our board of directors. Our Chief Executive Officer isappointed by, and serves at the discretion of, our board of directors. All other executive officers are also appointed by our board of directors, and are subject to theterms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services.All of our directors other than Dr. Shai Yarkoni and Kasbian Nuriel Chirich are independent under NASDAQ rules. The definition of independent director underthe NASDAQ rules and external director under the Companies Law overlap to a significant degree such that we would generally expect the two directors serving asexternal directors to satisfy the requirements to be independent under NASDAQ rules. The definition of external director includes a set of statutory criteria that mustbe satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the external director to exercise independent judgment.The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider anyfactor which would impair the ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period of threeyears. However, external directors must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See“— External Directors” below for a description of the requirements under the Companies Law for a director to serve as an external director.69Under our articles of association, our board of directors must consist of at least five and not more than eight directors, including at least two external directorsrequired to be appointed under the Companies Law. Our board of directors currently consists of six members, including our nonexecutive Chairman of the board ofdirectors.Under a founders agreement among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, ourformer Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (and removeany director so appointed). See “Related Party Transactions” below. We are not a party to this founders agreement and are not bound by it. Other than our twoexternal directors, our directors are elected by an ordinary resolution at the annual and/or special general meeting of our shareholders. Because our ordinary sharesdo not have cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders meeting have the powerto elect all of our directors, subject to the special approval requirements for external directors. See “— External Directors” below. We have held elections for each ofour nonexternal directors at each annual meeting of our shareholders since our initial public offering in Israel.In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office ending onthe earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance with our articles of association or anyapplicable law, subject to the maximum number of directors allowed under the articles of association. External directors are elected for an initial term of three yearsand may be elected for up to two additional threeyear terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges,such term may be extended indefinitely in increments of additional threeyear terms. External directors may be removed from office only under the limitedcircumstances set forth in the Companies Law. See “— External Directors” below.Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.See “— External Directors.” In determining the number of directors required to have such expertise, our board of directors must consider, among other things, thetype and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of ourcompany who are required to have accounting and financial expertise is two. Our board of directors has determined that Yuval Berman and Abraham Nahmias haveaccounting and financial expertise and possess professional qualifications as required under the Companies Law.Chairman of the BoardOur articles of association provide that the Chairman of the board of directors is appointed by the members of the board of directors and serves as Chairman ofthe board of directors throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the Chief Executive Officeror a relative of the Chief Executive Officer may not serve as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vestedwith authorities of the Chief Executive Officer without shareholder approval consisting of a majority vote of the shares present and voting at a shareholders meeting,provided that either:•such majority includes at least 2/3 of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in suchappointment, present and voting at such meeting (not including abstaining shareholders); or•the total number of shares of noncontrolling shareholders and shareholders who do not have a personal interest in such appointment voting against suchappointment does not exceed 2% of the aggregate voting rights in the company.In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board of directors; the Chairman ofthe board of directors may not be vested with authorities that are granted to those subordinated to the Chief Executive Officer; and the Chairman of the board ofdirectors may not serve in any other position in the company or a controlled company, except as a director or Chairman of a controlled company.70External DirectorsUnder the Companies Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange in oroutside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors must meet stringent standards ofindependence.According to regulations promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting expertise,”unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules, has “financial and accounting expertise,”and the other external director or directors are required to have “professional expertise”. An external director may not be appointed to an additional term unless: (1)such director has “accounting and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for another term there isanother external director who has “accounting and financial expertise” and the number of “accounting and financial experts” on the board of directors is at leastequal to the minimum number determined appropriate by the board of directors.A director has “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior positions.David Grossman and Yuval Berman have served as our external directors since 2014 and 2009 respectively, and both have the requisite accounting and financialexpertise. David Grossman was elected to serve from November 9, 2014 to November 9, 2017. Yuval Berman was initially elected to serve from August 27, 2009 toAugust 27, 2012, reelected to serve an additional term from August 27, 2012 and until August 27, 2015 and reelected to serve a final term from August 27, 2015 untilAugust 27, 2018. Our board of directors has determined that Yuval Berman has accounting and financial expertise.The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by amajority vote of the shares present and voting at a shareholders meeting, provided that either:•such majority includes at least a majority of the shares held by all shareholders who are noncontrolling shareholders and do not have a personal interest inthe election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting,excluding abstentions, to which we refer as a disinterested majority; or•the total number of shares voted by noncontrolling shareholders and by shareholders who do not have a personal interest in the election of the externaldirector, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such abilityderiving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controllingshareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or itsgeneral manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a publiccompany if no other shareholder holds more than 50% of the voting rights in the company.The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to twoadditional threeyear terms, except as provided below, provided that either:71•his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and isapproved at a shareholders meeting by a disinterested majority, where the total number of shares held by noncontrolling, disinterested shareholders votingfor such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related orCompeting Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with aRelated or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director.The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstandingshares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or acompany controlled by such shareholder, have a business relationship with the company or are competitors of the company.Additionally, the Israeli Minister of Justice, in consultation with the ISA, may determine matters that under certain conditions will not constitute a businessrelationship or competition with the company; or•his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majorityrequired for the initial election of an external director (as described above).The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely inincrements of additional threeyear terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of theexternal director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficialto the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as describedabove). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s shareholders must be informed of the termpreviously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal bythe same shareholder vote percentage required for their election, after receiving the board of directors arguments for such removal, or by a court, in each case, onlyunder limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. If an externaldirectorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under theCompanies Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director, except thatthe audit committee and the compensation committee must include all external directors then serving on the board of directors.External directors may be compensated only in accordance with regulations adopted under the Companies Law.Committees of the Board of DirectorsOur board of directors has established three standing committees, the audit committee, the financial statement examination committee the compensationcommittee.Audit CommitteeOur audit committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves as Chairman ofthe audit committee.Under the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including all of theexternal directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee may not include the Chairman of the boardof directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed by or providing services on a regular basis tothe company, to a controlling shareholder or to an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controllingshareholder.72In addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an“unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:•he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does notapply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and•he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than twoyears in service shall not be deemed to interrupt the continuation of the service.The Companies Law further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit committee’smeetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose of presenting on a specific subject; provided,however, that an employee of the company who is not the controlling shareholder or a relative of a controlling shareholder may attend the discussions of thecommittee, provided that any resolutions approved at such meeting are voted on without his or her presence. A company’s legal advisor and company secretarywho are not the controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by the committee.The quorum required for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members ofthe audit committee, provided such majority is comprised of a majority of independent directors, at least one of which is an external director.Under the NASDAQ corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each ofwhom is financially literate and one of whom has accounting or related financial management expertise.All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQcorporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial experts as defined by theSEC rules and have the requisite financial experience as defined by the NASDAQ corporate governance rules.Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act, according to which anaudit committee member is barred from accepting any consulting, advisory or other compensatory fee from the company or any subsidiary thereof, other than in themember's capacity as a member of the board of directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or hercapacity as a member of the board of directors and any committee of the board of directors.Our board of directors has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forththe responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the requirements for such committeeunder the Companies Law, including the following:•oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of ourindependent registered public accounting firm to the board of directors in accordance with Israeli law;•recommending the engagement or termination of the person filling the office of our internal auditor; and•recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm for preapproval by our board ofdirectors.73Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,financial reporting, internal control and legal compliance functions by preapproving the services performed by our independent accountants and reviewing theirreports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of ourindependent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.Under the Companies Law, our audit committee is responsible for:•determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or theindependent auditor, and making recommendations to the board of directors to improve such practices;•determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling shareholder that are classified by the auditcommittee as nonnegligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would requirethe approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;•determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether suchtransaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);•where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directorsand proposing amendments thereto;•examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of itsresponsibilities;•examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders,depending on which of them is considering the appointment of our auditor; and•establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to suchemployees.Our audit committee may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law” below), unless atthe time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.Financial Statement Examination CommitteeUnder the Israeli Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists ofmembers with accounting and financial expertise or the ability to read and understand financial statements, unless the board of directors of such company opts foran exemption under relevant regulations promulgated under the Israeli Companies Law, as our board of directors has done. Accordingly, in July 2016 our board ofdirectorsadopted a resolution that our audit committee is assigned the responsibilities and duties of the financial statements examination committee From time totime as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire boardof directors regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations to itsboard of directors (including the report of any deficiency found) with respect to the following issues: (1) estimations and assessments made in connection with thepreparation of financial statements; (2) internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financialstatements; (4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations, including theassumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internalauditors are invited to attend all meetings of audit committee when it is acting in the role of the financial statements examination committee.74Compensation Committee and Compensation PolicyOur compensation committee consists of Abraham Nahmias along with our two external directors, David Grossman and Yuval Berman. Mr. Berman serves asChairman of the compensation committee.The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement ofoffice holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering therecommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a SpecialApproval for Compensation as described below under “— Approval of related party transactions under Israeli law — Fiduciary duties of directors and executiveofficers”.Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. Thecompensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of thecompensation committee, and one of the external directors must serve as Chairman of the committee. However, subject to certain exceptions, Israeli companieswhose securities are traded on stock exchanges such as NASDAQ, and who do not have a controlling shareholder, do not have to meet this majority requirement;provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction wherethe company’s securities are traded. Each compensation committee member that is not an external director must be a director whose compensation does not exceedan amount that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to whomay not be a member of the committee.The compensation policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in theCompanies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations of the compensationcommittee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple majority, provided that (1) such majority includesa majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter whowere present and voted against the compensation policy, constitute two percent or less of the voting power of the company.To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company mayoverride the resolution of the shareholders following a rediscussion of the matter by the board of directors and the compensation committee and for specifiedreasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is for the benefit of the company.A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders andtheir relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is notmaterial in relation to its existing terms.Pursuant to the Companies Law, following the recommendation of our compensation committee, our board of directors approved our compensation policy, andour shareholders, in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014.75The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, includingexculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy mustrelate to certain factors, including advancement of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriateincentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensationpolicy must furthermore consider the following additional factors:•the knowledge, skills, expertise and accomplishments of the relevant office holder;•the office holder’s roles and responsibilities and prior compensation agreements with him or her;•the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, includingthose employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees ofthe company, as well as the impact such disparities may have on the work relationships in the company;•the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise valueof noncash variable equitybased compensation; and•as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, thecompany’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of itsprofits, and the circumstances under which the person is leaving the company.The compensation policy must also include:•a link between variable compensation and longterm performance and measurable criteria;•the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;•the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which suchcompensation was based was inaccurate and was required to be restated in the company’s financial statements;•the minimum holding or vesting period for variable, equitybased compensation; and•maximum limits for severance compensation.The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequentapproval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functionspreviously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:•recommending whether a compensation policy should continue in effect, if the thencurrent policy has a term of greater than three years (approval of either anew compensation policy or the continuation of an existing compensation policy must in any case occur every three years);•recommending to the board of directors periodic updates to the compensation policy;•assessing implementation of the compensation policy; and•determining whether the compensation terms of the Chief Executive Officer of the company need not be brought to approval of the shareholders.Our compensation committee's responsibilities include:•reviewing and recommending overall compensation policies with respect to our Chief Executive Officer and other executive officers;•reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers includingevaluating their performance in light of such goals and objectives;76•reviewing and approving the granting of options and other incentive awards; and•reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee directors.Internal AuditorUnder the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of theaudit committee. An internal auditor may not be:•a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;•a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;•an office holder (including a director) of the company (or a relative thereof); or•a member of the company’s independent accounting firm, or anyone on his or her behalf.The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee isrequired to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On May 31, 2016, weappointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firmin Israel.The Chairman of the board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise, according toour articles of association and the Companies Law. The internal auditor is required to submit his or her findings to the audit committee, unless specified otherwise bythe board of directors.Each director, except external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unlesshe or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordancewith the Companies Law and our amended and restated articles of association.Approval of Related Party Transactions under Israeli LawFiduciary Duties of Directors and Executive OfficersThe Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Directors and SeniorManagement” above is an office holder under the Companies Law.An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care withwhich a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in goodfaith and in the best interests of the company.The duty of care includes a duty to use reasonable means to obtain:•information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and•all other important information pertaining to any such action.77The duty of loyalty includes a duty to:•refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;•refrain from any activity that is competitive with the company;•refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position asan office holder.Disclosure of Personal Interests of an Office Holder and Approval of Certain TransactionsThe Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all relatedmaterial information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be madepromptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest ofany person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative ofsuch person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, butexcluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person forwhom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or sheholds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derivessolely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinarytransaction is defined as any of the following:•a transaction other than in the ordinary course of business;•a transaction that is not on market terms; or•a transaction that may have a material impact on a company’s profitability, assets or liabilities.If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless thecompany’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an officeholder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemeda breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed bythe office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s auditcommittee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requiresapproval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking toindemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number ofspecific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided thateither: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest insuch compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of noncontrolling shareholders and shareholders who donot have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require theapproval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a SpecialApproval for Compensation.78Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be presentat such a meeting or vote on that matter unless the Chairman of the relevant committee or board of directors, as applicable, determines that he or she should bepresent in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, asapplicable, has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereofshall also require the approval of the shareholders.Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain TransactionsPursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controllingshareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder whoholds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, theholdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensationcommittee, as the case may be, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with acontrolling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directlyor indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who isnot an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred to asa Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:•at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meetingapproving the transaction, excluding abstentions; or•the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting donot exceed 2% of the voting rights in the company.To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years,unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances relatedthereto.Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require theapproval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with thecompany’s stated compensation policy.Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or adirector that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the auditcommittee and board of directors and subject Company's Compensation Policy.Shareholder DutiesPursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and torefrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect tothe following matters:•an amendment to the company’s articles of association;•an increase of the company’s authorized share capital;79•a merger; or•the approval of related party transactions and acts of office holders that require shareholder approval.In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows thathe or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the powerto appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define thesubstance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the dutyto act with fairness.Exculpation, Insurance and Indemnification of Directors and OfficersUnder the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate anoffice holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if aprovision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpatein advance a director from liability arising out of a prohibited dividend or distribution to shareholders.Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him orher as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provisionauthorizing such indemnification, which ours do:•financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court.However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited toevents which, in the opinion of the board of directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify isgiven, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detailthe abovementioned foreseen events and amount or criteria;•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him orher by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result ofsuch investigation or proceeding; and (b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminalproceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does notrequire proof of criminal intent; and (2) in connection with a monetary sanction; and•reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her bythe company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of aconviction for an offense that does not require proof of criminal intent.Under the Companies Law and the Israeli Securities Law 57281968, or the Israeli Securities Law, a company may insure an office holder against the followingliabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:•a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would notharm the company;•a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and80•a financial liability imposed on the office holder in favor of a third party.Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:•a breach of duty of care to the company or to a third party;•any other action against which we are permitted by law to insure an office holder;•expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including theEfficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 57712011, or the Efficiency of Enforcement Procedures, andthe Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and•a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:•a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holderacted in good faith and had a reasonable basis to believe that the act would not harm the company;•a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;•an act or omission committed with intent to derive illegal personal benefit; or•a fine, civil fine, administrative fine or ransom or levied against the office holder.Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committeeand the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related PartyTransactions under Israeli Law.”Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Lawand the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles ofassociation, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification will be limited to eventsdetermined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors asreasonable under the circumstances.The maximum indemnification amount will be limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewedfinancial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/orby a thirdparty pursuant to an indemnification arrangement.In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy andtherefore unenforceable.We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay allpremiums thereunder to the fullest extent permitted by the Companies Law.81D.Employees.As of December 31, 2016, we had eighteen fulltime employees. These employees are comprised of thirteen in research and development and five employees inmanagement, finance and administration. From time to time, we also employ independent contractors to support our operations. Our employees are not representedby any collective bargaining agreements and we have never experienced an organized work stoppage. All our employees are located in Israel.E.Share Ownership.Stock Option PlansEquity Compensation PlanWe maintain our 2014 Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February 2024.The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers and service providers. As of December 31,2016, options to purchase 5,366,758 ordinary shares were outstanding and up to 2,796,242 ordinary shares are available for issuance. Of such outstanding options,options to purchase 2,905,925 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price of NIS 1.47 per share, and will expire 10years from the date of grant, during the years 2024 – 2026.The 2014 Cellect Option Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers under the2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment for any reason, other than in theevent of death or disability or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 daysfollowing termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the2014 Cellect Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon termination ofemployment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the termsof the 2014 Cellect Option Plan and the governing option agreement.Pursuant to the 2014 Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section 3(I)of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance. Section 102 of the Ordinanceprovides to employees, directors and officers who are not controlling shareholders (i.e., such persons are not deemed to hold 10% of our share capital, or to beentitled to 10% of our profits or to appoint a director to our board of directors) and are Israeli residents, favorable tax treatment for compensation in the form ofshares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or officer and are(or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be depositedwith a trustee appointed by us in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will be granted in theemployee income track or the capital gains track.Options granted under the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.In the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesIn the event that options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014 Cellect OptionPlan, such expired or terminated options will become available for future grant awards and allocations under the 2014 Cellect Option Plan. We have registered theordinary shares available for issuance under the 2014 Cellect Option Plan pursuant to a Registration Statement on Form S8.See also Item 7.A below.82ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersThe following table presents as of March 20, 2017 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by each person who isknown by us to be the beneficial owner of 5% or more of our outstanding Ordinary Shares (to whom we refer as our Major Shareholders),each of our directors; eachof our named executive officers; and all directors and executive officers as a group.. For purposes of Major Shareholders the data presented is based on informationprovided to us by the Major Shareholders or disclosed in public regulatory filings. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that thebeneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownershipof, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would,at a subsequent date, result in a change of control of our Company.Number ofOrdinarySharesBeneficiallyOwned (1)Percent of Class (2)Executive Officers and DirectorsNuriel Chirich Kasbian (3)17,148,43815.83%Shai Yarkoni (4)15,497,30214.22%Nadir Askenasy (5)13,717,16912.75%Ronen Twito (6)1,232,5621.13%Amotz Nechushtan (7)57,500*Abraham Nahmias (8)36,000*Ruth Ben Yakar (9)119,333*Yaron Pereg (10)41,667*Yuval Berman (11)36,000*David Grossman (12)36,000*Michael BerelowitzAll directors and executive officers as a group (11 persons)47,921,97144.24%Holders of more than 5% of our voting securities:Michael Ilan Management and Investments Ltd(13)18,928,26917.27%83*Less than 1%.(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.Ordinary Shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing thepercentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicatedby footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power withrespect to all shares shown as beneficially owned by them.(2)The percentages shown are based on 107,583,485 Ordinary Shares issued and outstanding as of March 20, 2017 plus Ordinary Shares relating to optionscurrently exercisable or exercisable within 60 days of the date of this table, which are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person.(3)Includes (i) 16,425,615 ordinary shares owned by Mr. Chirich, (ii) options (Series 1) to purchase 342,500 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016,(iii) options (Series A) to purchase 95,923 ordinary shares at an exercise price of NIS 2.1 per share and expiring onMarch 8, 2018, (iv) Warrants ADS to purchase 248,400 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) and expiring on July 29,2021, (iv) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 25, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(4)Includes (i) 14,095,762 ordinary shares owned by Mr. Yarkoni, (ii) options (Series 1) to purchase 70,000 ordinary shares at an exercise price of NIS 1.85 pershare and expiring on June 30, 2016, (iii) Warrants ADS to purchase 295,540 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021, (iv) options to purchase 1,000,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024,and (v) options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase236,000 ordinary shares that vest in more than 60 days from March 20, 2017.(5)Represents 13,717,169 ordinary shares owned by Dr. Askenasy.(6)Includes (i) 100,982 ordinary shares owned by Mr. Twito, (ii) options (Series A) to purchase 23,980 ordinary shares at an exercise price of NIS 2.1 per shareand expiring on March 8, 2018, (iii) options to purchase 1,107,600 ordinary shares at an exercise price of NIS 1.286 per share and expiring on November 22,2025.(7)Includes (i) options to purchase 40,000 ordinary shares at an exercise price of NIS 1.295 per share and expiring on November 28, 2025, (ii) options topurchase 17,500 ordinary shares at an exercise price of NIS 1.68 per share and expiring on May 30, 2026. Excludes options to purchase 92,500 ordinaryshares that vest in more than 60 days from March 20, 2017.(8)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(9)Represents (i) options to purchase 83,333 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, and (ii) options topurchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options to purchase 52,667 ordinaryshares that vest in more than 60 days from March 20, 2017.(10)Represents options to purchase 41,667 ordinary shares at an exercise price of NIS 0.631 per share and expiring on December 31, 2026. Excludes options topurchase 235,333 ordinary shares that vest in more than 60 days from March 20, 2017.(11)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(12)Represents options to purchase 36,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025. Excludes options topurchase 36,000 ordinary shares that vest in more than 60 days from March 20, 2017.(13)Includes (i) 16,906,455 ordinary shares owned by Michael Ilan Management and Investments Ltd., (ii) options (Series 1) to purchase 1,301,000 ordinaryshares at an exercise price of NIS 1.85 per share and expiring on November 21, 2016, (iii) options (Series A) to purchase 143,884 ordinary shares at anexercise price of NIS 2.1 per share, (iv) Warrants ADS to purchase 576,930 ordinary shares at an exercise price of NIS 1.95 ($ 7.5) per share (per ADS) andexpiring on July 29, 2021.84Changes in Percentage Ownership by Major ShareholdersRecord HoldersBased upon a review of the information provided to us by our transfer agent and custodian bank in the United States, as of March 16, 2017, there were a total ofseven holders of record of our shares, of which 1 record holder holding 19,529,960 shares, or approximately 17.7% of our outstanding shares had a registeredaddress in the United States, five holders had registered addresses in Israel and one holder had a registered address in Panama. These numbers are notrepresentative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were heldof record by brokers or other nominees.The Company is not controlled by another corporation, by any foreign government or by any natural or legal persons except as set forth herein, and here are noarrangements known to the Company which would result in a change in control of the Company at a subsequent date. See “Related Party Transactions – FoundersAgreement” for information regarding a voting agreement among certain of our shareholders.B.Related Party TransactionsThe following is a description of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. Thedescriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the completeagreements.We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained fromunaffiliated third parties. See “Board Practices — Approval of Related Party Transactions under Israeli Law.”Founders AgreementOn June 1, 2011, Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our Chief TechnologyOfficer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on May 16, 2013, the parties to the foundersagreement entered into an agreement pursuant to which it was agreed that the founders agreement will apply to the parties with respect to us following the mergerwhich closed on July 1, 2013.Under the founders agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director (andremove any director so appointed). The founders agreement also provides preemptive rights, rights of first refusal, cosale rights and bring along rights among thefounders subject to certain permitted transfers.Chirich LoansIn 2011, Kasbian Nuriel Chirich, our Chairman, lent to Cellect Biotherapeutics, our subsidiary, $140,000 bearing interest at 3% per annum and payable within 60days upon written demand, but not earlier than April 2014. In May 2014, following our raise of NIS 15 million, we repaid the loan.On December 11, 2012, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed $50,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. On April 30, 2013, Cellect Biotherapeutics and Mr. Chirich entered into an amendment to the loan agreementpursuant to which the loan was converted into 697,324 ordinary shares of Cellect Biotherapeutics.85On February 7, 2013, Cellect Biotherapeutics and Mr. Chirich entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 fromMr. Chirich. The loan bore interest at Libor plus 3%. The loan was repaid during May 2013.Yarkoni LoansOn February 7, 2013, Cellect Biotherapeutics and G.A.S.R. Biotechnology Ltd., or G.A.S.R., a company controlled by Dr. Shai Yarkoni, our Chief Executive Officerand director, entered into a loan agreement pursuant to which Cellect Biotherapeutics borrowed NIS 100,000 from G.A.S.R. The loan bore interest at Libor plus 3%.The loan was repaid during May 2013.Michael IlanOn May 13, 2014, Michael Ilan Management and Investments Ltd. (a private company whollyowned by Mr. Michael Ilan), purchased 14,217,070 of our ordinaryshares for NIS 15,000,000 in a private placement. As a result of this transaction, Michael Ilan became a related party.Indemnification AgreementsOur articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. Wehave obtained directors’ and officers’ insurance for each of our officers and directors. We have entered into indemnification and exculpation agreements with each ofour current office holders and directors. We have entered into indemnification and exculpation agreements with each of our current office holders and directorsexculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the lawand our articles of association,. See “Board Practices — Exculpation, Insurance and Indemnification of Directors and Officers.”Employment and Service AgreementsWe have or have had employment, service or related agreements with each member of our senior management. See “Compensation” “Employment Agreementswith Executive Officers”.C.Interests of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATION.A.Consolidated Statements and Other Financial Information.See “Item 18. Financial Statements.”Legal ProceedingsFrom time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not aparty to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or threatened material legal or administrativeproceedings against us.On March 7, 2017, the Company petitioned the district court of Tel Aviv (the “Court”) to approve the convening of a Special General Meeting of its shareholdersfor the purpose of (i) approving the extension of the expiration date of the Registrant’s Series1 Stock Options (the “Series1 Stock Options”) to a date that is 80days from the Court’s approval for such extension, if granted (the Court had previously extended the expiration date of the Series1 Stock Options to June 30, 2017),(ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20 and (iii) requesting shareholder approval for the proposed delisting of theRegistrant’s ordinary shares from the Tel Aviv Stock Exchange.86In addition, the Company petitioned the Court to approve the convening of a Special General Meeting of the holders of its Series1 Stock Options for thepurpose of (i) approving the extension of the expiration date of the Series1 Stock Options to a date that is 80 days from the Court’s approval for such extension, ifgranted, and (ii) to amend the exercise price of the Series1 Stock Options from NIS 1.85 to NIS 1.20DividendsWe have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings indeveloping and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will dependon a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects,applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits thedistribution of dividends only out of distributable profits. See “Memorandum and Articles of Association — Dividends.” See “Taxation — Israeli TaxConsiderations and Government Programs.”If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for any unexercised warrants. Cash dividends on our ordinaryshares, if any, will be paid to ADS holders in U.S. dollars.B.Significant ChangesNo significant change, other than as otherwise described in this annual report on Form 20F, has occurred in our operations since the date of our consolidatedfinancial statements included in this annual report on Form 20F.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur Ordinary Shares have been trading on the TASE under the symbol “CLBD” since 1990. On July 29, 2016, our ADSs and warrants, commenced trading on theNASDAQ Capital Market under the symbols “APOP” and “APOPW”, respectively.The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S.dollars. U.S. dollar per Ordinary Share amounts are calculated using the exchange rate reported by the Bank of Israel for December 31, 2016 at the rate of one U.S.dollar per NIS 3.845NISU.S.$Price PerPrice PerOrdinaryOrdinaryShareShareHighLowHighLowAnnual:2017 (through March 20, 2017)1.3300.5840.3460.15220161.9980.450.5190.12020151.6260.9890.4220.25720141.5310.7050.3980.18320132.0200.1820.5250.04720121.7060.1690.4430.043Quarterly:First Quarter 2017 (through March 20, 2017)1.3300.5840.3460.152Fourth Quarter 20160.8440.450.2190.120Third Quarter 20161.5930.8250.4140.214Second Quarter 20161.9981.3380.5190.347First Quarter 20161.4991.2070.3890.053Fourth Quarter 20151.4721.0400.3820.270Third Quarter 20151.3811.1430.3590.297Second Quarter 20151.6261.2670.4220.329First Quarter 20151.5010.9890.3900.257Most Recent Six Months:March 2017 (through March 20, 2017)1.2761.1080.3320.288February 20171.3300.6340.3450.164January 20170.8710.5840.2260.151December 20160.6060.4500.1570.120November 20160.8150.6120.2110.159October 20160.8440.7930.2190.206September 20160.9160.8250.2380.21487The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs and warrants on the NASDAQ Capital Marketin U.S. dollars.U.S.$Price PerADSHighLowAnnual:2017 (through March 20, 2017)6.8503.0682016 (from July 29, 2016)5.3002.660Quarterly:First Quarter 2017 (through March 20, 2017)6.8503.068Fourth Quarter 20164.6302.660Third Quarter 2016 (Since July 29, 2016)5.3004.390Most Recent Six Months:March 2017 (through March 20, 2017)6.8506.230February 20176.7203.450January 20176.1103.068December 20163.0902.660November 20164.1503.200October 20164.6303.850September 20164.7604.40088B. Plan of DistributionNot applicable.C. MarketsOur Ordinary Shares are listed on the TASE. Our ADSs and warrants are listed on the NASDAQ Capital Market.D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.B.Memorandum and Articles of AssociationOur registration number with the Israeli Registrar of Companies is 520036484. Purposes and Objects of the CompanyOur purpose is set forth in Section 2 of our articles of association and includes every lawful purpose. The Powers of the DirectorsOur board of directors directs our policy and supervises the performance of our Chief Executive Officer. Pursuant to the Companies Law and our articles ofassociation, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised ortaken by our shareholders.Rights Attached to SharesOur Ordinary Shares shall confer upon the holders thereof:●equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attendthe meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote;89●equal right to in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a pershare pro rata basis; and●equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis.Amendment of Share CapitalOur articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must beapproved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions thathave the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance ofshares for less than their nominal value, require a resolution of our board of directors and court approval.DividendsUnder Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that thedistribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, thedistribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distributionaccording to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date ofdistribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seekthe approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the paymentof a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.Shareholders MeetingsUnder Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months afterthe date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board ofdirectors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law andour articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our directors or onequarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstandingvoting power, or (b) 5% of our outstanding voting power.Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetingsare the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles of association require thatresolutions regarding the following matters must be passed at a general meeting of our shareholders:•amendments to our articles of association;•appointment or termination of our auditors;•appointment and dismissal of directors and external directors;•approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;•director compensation, indemnification and change of the principal executive officer;•increases or reductions of our authorized share capital;•a merger;•the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of itspowers is required for our proper management; and•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority.90The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda ofthe meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of amerger, notice must be provided at least 35 days prior to the meeting.The Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our articles ofassociation do not allow shareholders to approve corporate matters by written consent.Pursuant to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before theshareholders at a general meeting.QuorumThe quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument inaccordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3% of the total outstanding voting rights,within half an hour from the appointed time.A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in thesummons or notice of the meeting. At the reconvened meeting, and within half an hour from the appointed time, any number of our shareholders present in personor by proxy shall constitute a lawful quorum.ResolutionsOur articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholderindicates how he or she votes on resolutions relating to the following matters:•an appointment or removal of directors;•an approval of transactions with office holders or interested or related parties, that require shareholder approval;•an approval of a merger;•authorizing the Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such authority; or authorize thecompany’s Chief Executive Officer or his relative to act as the Chairman of the board of directors or act with such authority;•any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate anyadditional matters; and•other matters which may be prescribed by Israel’s Minister of Justice.The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its othershareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matterssuch as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions.A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, anyshareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, canappoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The CompaniesLaw does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to actwith fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.91Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by asimple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for thevoluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by writtenballot and voting on the resolution.In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to theirshareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of aclass of shares with preferential rights that may be authorized in the future.Changing Rights Attached to SharesUnless otherwise provided by the terms of the shares and subject to any applicable law, in order to change the rights attached to shares, such change must beadopted by the general meeting.Limitations on the Right to Own Securities in Our CompanyThere are no limitations on the right to own our securities.Provisions Restricting Change in Control of Our CompanyThere are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change incontrol of the Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, asdescribed below, certain provisions of the Companies Law may have such effect.The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transactionapproved by its board of directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, themerger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the otherparty to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) voteagainst the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists areasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, amerger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the IsraeliRegistrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.The Companies Law also provides that an acquisition of shares in a public company must be made by means of a "special" tender offer if as a result of theacquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the companyor (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. Theserequirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greatershareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder ofthe company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A "special" tender offer must be extended to all shareholders,but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. Ingeneral, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number ofshares tendered in the offer exceeds the number of shares whose holders objected to the offer.92If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of atender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of theofferees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholdersmay request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer isentitled to stipulate that tendering shareholders will forfeit such appraisal rights.Lastly, Israeli tax law treats some acquisitions, such as stockforstock exchanges between an Israeli company and a foreign company, less favorably than U.S.tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation totaxation prior to the sale of the shares received in such stockforstock swap.Changes in Our CapitalPursuant to provisions of the Companies Law the general meeting may,●increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting;●cancel any registered share capital which have not been taken or agreed to be taken by any person;●consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares;●subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed;●reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consentrequired, by the Companies Law; and●reduce shares from our issued and outstanding share capital, in such manner that those shares shall be cancelled and the nominal par value paid for thoseshares will be registered on our books as capital fund, which shall be deemed as a premium paid on those shares which shall remain in our issued andoutstanding share capital.C.Material ContractsExcept as set forth below, we have not entered into any material contract within the two years prior to the date of this annual report on Form 20F, other thancontracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development of the Company” above,“Item 4.B. Business Overview” above, “Item 7A. Major Shareholders” or Item 7B. “Related Party Transactions” above.93Underwriting AgreementOn July 29, 2016, we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters namedtherein and bookrunning manager with respect to the public offering of our ADSs and warrants that were offered under a registration statement (Registration No.333212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to purchase 969,231 ADSs to the underwriters in the public offering. The netproceeds to the Company were approximately $7.6 million (after deducting underwriters’ fees).D.Exchange ControlsThere are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our Ordinary Shares or the proceedsfrom the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislationremains in effect pursuant to which currency controls can be imposed by administrative action at any time.The ownership or voting of our Ordinary Shares by nonresidents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is notrestricted in any way by our memorandum of association or amended and restated articles of association or by the laws of the State of Israel.E.Taxation.The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinaryshares or ADSs or warrants (all referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particularsituation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.Israeli Tax Considerations and Government ProgramsThe following is a summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli income taxconsequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects of Israeli income tax law that may be relevantto a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examplesof this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that thediscussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate taxauthorities or the courts will accept the views expressed in this discussion. This summary is based on laws and regulations in effect as of the date of this annualreport and does not take into account possible future amendments which may be under consideration.General corporate tax structure in IsraelIsraeli resident companies, such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax rate willbe 24% and 23% accordingly.Capital gains derived by an Israeli resident company are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will beconsidered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercisedin Israel.Law for the Encouragement of Industry (Taxes), 57291969The Law for the Encouragement of Industry (Taxes), 57291969, generally referred to as the Industry Encouragement Law, provides several tax benefits for“Industrial Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement Law.94The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, otherthan income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principalactivity in a given tax year is industrial production.The following corporate tax benefits, among others, are available to Industrial Companies:•amortization over an eightyear period of the cost of purchased knowhow and patents and rights to use a patent and knowhow which are used for thedevelopment or advancement of the company; and•under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.There can be no assurance that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available inthe future.Law for the Encouragement of Capital Investments, 57191959The Law for the Encouragement of Capital Investments, 57191959, generally referred to as the Investment Law, provides certain incentives for capitalinvestments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).The Investment Law was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.The 2011 Amendment introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in theInvestment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to itsincome derived by its Preferred Enterprise unless the Preferred Enterprise is located in a specified development zone (Cellect Biotherapeutics is not), in which casethe rate will be 9%. Under the 2011 Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.Tax benefits are available under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% oftheir business income from export and meet additional criteria stipulate in the amendment.Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed toindividuals or a nonIsraeli company a withholding of 20%, or such lower rate as may be provided in an applicable tax treaty, will apply).From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantialreduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.Currently, Cellect Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment Law.However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate tax rate according to the Investment Law.95Taxation of our Israeli individual shareholders on receipt of dividendsIsraeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share dividends) at arate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below) at the time of distribution or at any time during the preceding12month period.As of January 1, 2013, an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January, 2017the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.A “substantial shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds,directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or sheis to exercise such right(s), and all regardless of the source of such right.The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life is in Israel. The Ordinanceprovides that in order to determine the center of life of an individual, account will be taken of the individual’s family, economic and social connections, including: (a)place of permanent home; (b) place of residential dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanentoccupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests; (e) place of the individual’s activitiesin organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if: (a) the individual was present in Israel for183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s presence inIsrael in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may be rebutted either by the individual or by theassessing officer.Taxation of Israeli Resident Corporations on Receipt of DividendsIsraeli resident corporations are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.Capital Gains Taxes Applicable to Israeli Resident ShareholdersThe income tax rate applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of shares which had beenpurchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (asdefined above) at the time of sale or at any time during the preceding 12month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additionaltax at a rate of 2% is imposed on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whoseannual income or gain exceeds NIS 640,000.Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary businessincome, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).Taxation of NonIsraeli Shareholders on Receipt of DividendsNonIsraeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient is a“substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date. If the Shares are held by a nominee company, thenominee company or the financial institution will withhold at the source a tax of 25% whether the recipient is a substantial shareholder or not. Otherwise, thewithholding at the source will be 25% or 30% in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’scountry of residence.96A nonIsraeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income;provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.For example, under the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, asamended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid outof the profits of a “Approved Enterprise”, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting shares of thepaying corporation during the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its priortaxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross income of the paying corporationconsists of interest or dividends (other than interest derived from the conduct of banking, insurance, or financing business or interest received from subsidiarycorporations, 50% or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest isreceived) the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.Capital gains income taxes applicable to nonIsraeli shareholders.NonIsraeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, nonIsraeli corporations willnot be entitled to the foregoing exemptions if Israeli residents (1) jointly have a controlling interest of more than 25% in such nonIsraeli corporation or (2) are thebeneficiaries of or are entitled to 25% or more of the revenues or profits of such nonIsraeli corporation, whether directly or indirectly.Regardless of whether shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject towithholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order toavoid withholding at source at the time of sale.Estate and gift taxIsraeli law presently does not impose estate or gift taxes.EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OFPURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLELAWS.U.S. Federal Income Tax ConsiderationsTHE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BECONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULARU.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORYSHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.Holder” arising from the purchase, ownership and sale of the Ordinary Shares, ADSs and warrants. For this purpose, a “U.S. Holder” is a beneficial owner ofOrdinary Shares or ADSs or warrants that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanentresident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporationfor U.S. federal income tax purposes) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) anestate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4) a trust if a court within the United States isable to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;and (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.97This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income taxconsiderations that may be relevant to a decision to purchase our Ordinary Shares or ADSs or warrants. This summary generally considers only U.S. Holders thatwill own our Ordinary Shares or ADSs or warrants as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal taxconsequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is basedon the provisions of the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof,and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which areopen to differing interpretations. We will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our Ordinary Sharesor ADSs or warrants by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder based on such holder’sparticular circumstances and in particular does not discuss any estate, gift, generationskipping, transfer, state, local, excise or foreign tax considerations. Inaddition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investmentcompany, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our OrdinaryShares or ADSs or warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Ordinary Shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or otherriskreduction transaction for U.S. federal income tax purposes; (6) a taxexempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of theUnited States or a former longterm resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion doesnot address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, Ordinary Shares or ADSs or warrantsrepresenting 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold Ordinary Shares or ADSs or warrantsthrough a partnership or other passthrough entity are not considered.Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposingof our Ordinary Shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.Taxation of Dividends Paid on Ordinary Shares or ADSsWe do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “PassiveForeign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on OrdinaryShares or ADSs (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current oraccumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulatedearnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares or ADSs to the extent thereof,and then as capital gain. Corporate holders generally will not be allowed a deduction for dividends received.98In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are individuals, estates or trusts.For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is acorporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS hasstated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.In addition, our dividends will be qualified dividend income if our Ordinary Shares or ADSs are readily tradable on NASDAQ or another established securitiesmarket in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, asdescribed below under “Passive Foreign Investment Companies”. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held ourOrdinary Shares or ADSs for at least 61 days of the 121 day period beginning on the date which is 60 days before the exdividend date, or (2) to the extent the U.S.Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss onour Ordinary Shares or ADSs are not counted towards meeting the 61day holding period. Finally, U.S. Holders who elect to treat the dividend income as“investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.The amount of a distribution with respect to our Ordinary Shares or ADSs will be measured by the amount of the fair market value of any property distributed,and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income ofU.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S.Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS intoU.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category income forsuch purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability forIsraeli income tax withheld from distributions received in respect of the Ordinary Shares or ADSs. The rules relating to the determination of the U.S. foreign tax creditare complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders thatdo not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.Taxation of the Disposition of Ordinary Shares or ADSs or warrantsExcept as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of ourOrdinary Shares or ADSs or warrants, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis forthe Ordinary Shares or ADSs or warrants in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined byreference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale,exchange or other disposition of Ordinary Shares or ADSs or warrants will be longterm capital gain or loss if the U.S. Holder has a holding period of more than oneyear at the time of the disposition.Gain realized by a U.S. Holder on a sale, exchange or other disposition of Ordinary Shares or ADSs or warrants will generally be treated as U.S. source income forU.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is generallyallocated to U.S. source income. The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares or ADSs or warrants is subject tolimitations.99Passive Foreign Investment CompaniesSpecial U.S. federal income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S. federal incometax purposes for any taxable year that either:•75% or more of our gross income (including our pro rata share of gross income for any company in which we are considered to own 25% or more of the sharesby value) is passive; or•at least 50% of our assets, averaged quarterly over the year (including our pro rata share of the assets of any company in which we are considered to own25% or more of the shares by value) and generally determined based upon value (provided we were not considered a “controlled foreign corporation” prior tothe public offering) are held for the production of, or produce, passive income.For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and fromnotional principal contracts. Cash is treated as generating passive income.Based on the nature of our business, the projected composition of our income and the projected composition and estimated fair market values of our assets, wemay be classified as a PFIC. In addition, we may have been a PFIC in prior years and may be a PFIC in the future. U.S. Holders who hold Ordinary Shares or ADSs orwarrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holderswho made a QEF or marktomarket election.If we currently are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has notelected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i) any “excess distribution” (generally, the portion of anydistributions received by the nonelecting U.S. Holder on the Ordinary Shares or ADSs or warrants in a taxable year in excess of 125% of the average annualdistributions received by the nonelecting U.S. Holder in the three preceding taxable years, or, if shorter, the nonelecting U.S. Holder’s holding period for theOrdinary Shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such Ordinary Shares or ADSs or warrants. Under these rules:•the excess distribution or gain would be allocated ratably over the nonelecting U.S. Holder’s holding period for such Ordinary Shares or ADSs or warrants;•the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and•the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for thatyear, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a stepup to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by thedecedent. Indirect investments in a PFIC may also be subject to these special U.S. federal income tax rules.The PFIC rules described above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the OrdinaryShares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such aQEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary incomeand such U.S. Holder’s pro rata share of our net capital gains as longterm capital gain, regardless of whether we make any distributions of such earnings or gain. Ingeneral, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholderbyshareholder basis andgenerally may be revoked only with the consent of the IRS.100In addition, the PFIC rules described above would not apply if we were a PFIC and a U.S. Holder made a marktomarket election. A U.S. Holder of our OrdinaryShares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the Ordinary Shares or ADSs or warrants tomarket annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market valueof the Ordinary Shares or ADSs or warrants and the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs or warrants. Losses are allowed only to theextent of net marktomarket gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder may recognize taxableincome without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in our Ordinary Shares or ADSs or warrants would beadjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would betreated as ordinary income, and any loss realized on the sale, exchange or other disposition of our Ordinary Shares or ADSs or warrants would be treated as ordinaryloss to the extent that such loss does not exceed the net marktomarket gains previously included in income by the U.S. Holder, and any loss in excess of suchamount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income orlongterm capital gains.U.S. Holders who do not make a timely QEF election or a marktomarket election, and who hold our Ordinary Shares or ADSs or warrants during a period whenwe are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules,including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or marktomarket election with respect to ourOrdinary Shares or ADSs or warrants in the event that we are a PFIC.Tax on Investment IncomeU.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends onand gains from the sale or other disposition of our Ordinary Shares and ADSs or warrants), or in the case of estates and trusts on their net investment income that isnot distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or warrantsExcept as provided below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a nonU.S. Holder, generally will not be subjectto U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our Ordinary Shares or ADSs or warrants.A nonU.S. Holder may be subject to U.S. federal income tax on a dividend paid on our Ordinary Shares or ADSs or warrants or gain from the disposition of ourOrdinary Shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the nonU.S. Holder of a trade or business in the United States,or, if required by an applicable income tax treaty is attributable to a permanent establishment or fixed place of business in the United States; or (2) in the case of adisposition of our Ordinary Shares or ADSs or warrants, the individual nonU.S. Holder is present in the United States for 183 days or more in the taxable year of thedisposition and other specified conditions are met.In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our Ordinary Shares or ADSs or warrants ifpayment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. relatedperson, nonU.S. Holders may be subject to backup withholding, unless the nonU.S. Holder provides an applicable IRS Form W8 (or a substantially similar form)certifying its foreign status, or otherwise establishes an exemption.The amount of any backup withholding from a payment to a nonU.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability andmay entitle such holder to a refund, provided that the required information is timely furnished to the IRS.101Information Reporting and WithholdingA U.S. Holder may be subject to backup withholding at a rate of 28% with respect to dividends and proceeds from a disposition of Ordinary Shares or ADSs orwarrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not applywith respect to payments made to designated exempt recipients, such as corporations and taxexempt organizations. Backup withholding is not an additional tax andmay be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our Ordinary Shares or ADSs or warrants, unless suchOrdinary Shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRSif the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollaramount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports inlight of your particular circumstances.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will filereports with the SEC. You may read and copy the annual report on Form 20F, including the related exhibits and schedules, and any document we file with the SECwithout charge at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of the documents atprescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1800SEC0330for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers thatfile electronically with the SEC. Our filings with the SEC will also available to the public through the SEC's website at www.sec.gov.As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptlyas U.S. domestic companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20F containing financial statements audited by an independent registered publicaccounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.In addition, since our Ordinary Shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to,the TASE and the Israel Securities Authority, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA can beretrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).We maintain a corporate website www.cellectbio.com. Information contained on, or that can be accessed through, our website and the other websites referencedabove do not constitute a part of this annual report on Form 20F. We have included these website addresses in this annual report on Form 20F solely as inactivetextual references.102I.Subsidiary Information.Not applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKIn the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.Quantitative and Qualitative Disclosure About Market RiskWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results ofoperations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments.Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.Interest Rate RiskFollowing the date of this annual report, we do not anticipate undertaking any significant longterm borrowings. At present, our investments consist primarily ofcash and cash equivalents and financial assets at fair value. Following the date of this annual report, we may invest in investmentgrade marketable securities withmaturities of up to three years, including commercial paper, money market funds, and government/nongovernment debt securities. The primary objective of ourinvestment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Ourinvestments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any.We manage this exposure by performing ongoing evaluations of our investments. Due to the shortterm maturities, if any, of our investments to date, their carryingvalue has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold suchinvestments to maturity in order to limit our exposure to interest rate fluctuations.Foreign Currency Exchange RiskOur foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainlyagainst the U.S. dollar. Although the NIS is currently our functional currency, a small portion of our expenses are denominated in U.S. dollars. Our U.S. dollarexpenses consist principally of payments made to subcontractors and consultants for clinical trials and other research and development activities as well aspayments made to purchase new equipment. We anticipate that our expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against theU.S. dollar, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results ofoperations or financial condition.To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposurefrom fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverseeffects of such fluctuations.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt Securities.Not applicable.103B.Warrants and rights.Not applicable.C.Other Securities.Not applicable.D.American Depositary SharesFees and ExpensesPersons depositing or withdrawing ordinary shares or ADS holders must pay:For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of ordinaryshares or rights or other propertyCancellation of ADSs for the purpose of withdrawal, including if the depositagreement terminates$.05 (or less) per ADSAny cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the ordinary shares had been deposited forissuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders$.05 (or less) per ADS per calendar yearDepositary servicesRegistration or transfer feesTransfer and registration of ordinary shares on our share register to or from thename of the depositary or its agent when you deposit or withdraw ordinarysharesExpenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement); converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADSs or ordinary shares underlying ADSs, such as stock transfertaxes, stamp duty or withholding taxesAs necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose ofwithdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amountsdistributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cashdistributions or by directly billing investors or by charging the bookentry system accounts of participants acting for them. The depositary may collect any of itsfees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to paythose fees. The depositary may generally refuse to provide feeattracting services until its fees for those services are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performingits duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliatedwith the depositary and that may earn or share fees, spreads or commissions.104The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. Therevenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and therate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that theexchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that themethod by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. Themethodology used to determine exchange rates used in currency conversions is available upon request.105PART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSThere are no material modifications to the rights of security holders.Use of Proceeds Initial Public OfferingThe effective date of the registration statement (File no. 333212432) for our initial U.S public offering of our ADSs and warrants, was July 28, 2016. The offeringwith respect to our ADSs and warrants commenced on July 28, 2016 and was closed on August 3, 2016. H.C. Wainwright & Co., LLC was the bookrunning managerfor the offering. We registered 1,292,308 American Depository Shares (ADSs), each representing 20 of our ordinary shares, and public warrants to purchase up to969,231 ADSs, and granted the underwriters a 45day option to purchase up to an additional 193,846 ADSs and/or warrants to purchase an additional 145,385 ADSs,at the public offering price, less underwriting discount, to cover overallotments, if any. The overallotment option was partially exercised by the underwriters for thepurchase of warrants to purchase 65,890 ADSs,.The gross proceeds received by us from this offering were approximately $8.4 million prior to deducting underwriting discounts, commissions and otherestimated offering expenses. Under the terms of the offering, we incurred aggregate underwriting discounts and commissions of approximately $0.6 million andexpenses of approximately $0.2 million in connection with the offering, resulting in net proceeds to us of approximately $7.6 million. None of the expenses was paiddirectly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,or to any of our affiliatesThe primary purposes of this offering were to fund our Phase I/II single arm, open label clinical trial, perform a pivotal study, develop our ApotainerTM selectionkit product, advance the development of our Powered by Cellect technology platform for additional indications and for general research activities as well as forworking capital and other general corporate purposes.As of March 20, 2017, we have used approximately $2.2 million of the net proceeds of this offering for on going R&D and clinical research, approximately $1.1million to working capital; and any other purposes.We expect to use the additional net proceeds from this offering as follows:Approximately $2.9 million to on going R&D and clinical research, and approximately $1.4 million to working capital; and any other purposes.We believe that the net proceeds from the offering, together with our cash reserves preceding the offering, should be sufficient to complete Our clinical activatesas planned.Our expected use of net proceeds from the offering represents our current intentions based upon our present plans and business condition. As of the date ofthis annual report, we cannot predict with certainty any or all of the particular uses for the net proceeds we received upon the completion of the offering, or theamounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending onnumerous factors. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, andinvestors in our securities will be relying on our judgment regarding the application of the net proceeds from the offering.106ITEM 15.CONTROLS AND PROCEDURES(a) Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of December 31, 2016, or the Evaluation Date. Based on suchevaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizingand reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated andcommunicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.(b) Management's Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition periodestablished by rules of the SEC for newly public companies.(c) Attestation Report of the Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reportingdue to an exemption for emerging growth companies provided in the JOBS Act.(d) Changes in Internal Control over Financial ReportingDuring the year ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the following two members of our audit committee: Yuval Berman and Abraham Nahmias, is an auditcommittee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaqrules.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs and warrants on NASDAQ applicable to all of ourdirectors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similarfunctions, which is a “code of ethics” as defined in Item 16B of Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website atwww.cellectbio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this annual report on Form20F and is not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from aprovision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of theSEC. We have not granted any waivers under our Code of Business Conduct and Ethics.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESKost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, has served as our principal independentregistered public accounting firm for each of the two years ended December 31, 2016 and 2015.107The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer and/or other member firms of Ernst & Young Global for allservices, including audit services, for the years ended December 31, 2016 and 2015: Year EndedDecember 31,20152016(in thousands)Audit fees (1)$3261Auditrelated fees50146Tax fees (2)419All other fees20Total$86246(1)Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financialstatements.(2)Includes professional fees related to tax returns, transfer pricing and consulting on state and sales tax in the United States.PreApproval of Auditors' CompensationOur audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform certain audit and nonauditservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the categories of audit services, auditrelated services and tax services that may beperformed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to performthe prohibited nonaudit functions defined in applicable SEC rules.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot applicable.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEThe SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with variouscorporate governance practices. In addition, we are required to comply with the NASDAQ Stock Market rules. Under those rules, we may elect to follow certaincorporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwiseimposed by the NASDAQ Stock Market rules for U.S. domestic issuers.108In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Stock Market rules, we have elected to follow theprovisions of the Companies Law, rather than the NASDAQ Stock Market rules, with respect to the following requirements:Distribution of certain reports to shareholders. As opposed to the listing rules of NASDAQ, which require listed issuers to make certain reports, such asannual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distributeperiodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make suchreports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statementsavailable to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt fromthe SEC’s proxy solicitation rules.Nomination of directors. With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected byan annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Board Practices.” The nominations fordirectors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions ofour articles of association and the Companies Law. One or more shareholders of a company holding at least 1% of the voting power of the company may nominate acurrently serving external director for an additional three year term. Nominations need not be made by a nominating committee of our board of directors consistingsolely of independent directors or by independent directors constituting a majority of independent directors, as required under the listing rules of NASDAQ.Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities ofour compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles ofassociation do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of ourboard of directors, determine an executive officer’s compensation, as is generally required under the listing rules of NASDAQ with respect to the Chief ExecutiveOfficer and all other executive officers of a company. However, Israeli law and our articles of association do require that our audit and compensation committees eachcontain two external directors (as defined in the Companies Law. See “Board Practices — External Directors.”). In addition, Israeli law requires that additionalmembers of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itselfin accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law.Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and incertain circumstances by our shareholders, as detailed below under the caption “— Shareholder Approval.” Thus, we will seek shareholder approval for allcorporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring suchapproval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain officeholder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of NASDAQ. See “— Compensation Committee andCompensation Policy” below.Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed above under “Compensation Committee andCompensation Policy”. Our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” underapplicable NASDAQ and SEC rules.109Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be “independent,” as defined underNASDAQ Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as described belowunder “Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the CompaniesLaw and the applicable NASDAQ and SEC criteria for independence, and under Israeli law, the audit committee and compensation committee must each include allexternal directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” asdefined in the Companies Law, as described under the caption “— Audit Committee.” Our board of directors has affirmatively determined that each of: DavidGrossman, Yuval Berman and Abraham Nahmias qualifies as “independent” under NASDAQ independence standards.Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, ratherthan seeking approval for corporate actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval isgenerally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rightsor if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leadingto a change of control; (iii) adoption or material amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights(including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) ifsuch equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is requiredfor, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for anyother position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b)extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described under “Disclosure of personalinterests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, ifany, or such controlling shareholder’s relative, which require the special approval described under “Disclosure of personal interests of controlling shareholders andapproval of certain transactions, (d) approval of transactions with company’s Chief Executive Officer with respect to his or her compensation, whether in accordancewith the approved compensation policy of the company or not in accordance with the approved compensation policy of the company, or transactions with officersof the company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the company for office holders. Inaddition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies.Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on NASDAQ. Wemay in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ corporate governance rules. Following ourhome country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide lessprotection to you than what is accorded to investors under the listing rules of NASDAQ applicable to domestic U.S. issuers.ITEM 16H.MINE SAFETY DISCLOSURENot applicable.110PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements and related information pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20F beginning on page F1.ITEM 19.EXHIBITS.Exhibit No.Exhibit Description1.1Articles of Association of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.1 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).1.2Certificate of Name Change of Cellect Biotechnology Ltd. (unofficial English translation from Hebrew original) (included as Exhibit 3.2 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 25, 2016, and incorporated herein byreference).2.1Form of Deposit Agreement between Cellect Biotechnology Ltd., The Bank of New York Mellon as Depositary, and owners and holders from timeto time of ADSs issued thereunder (included as Exhibit 4.1 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.2Specimen American Depositary Receipt (included in Exhibit 2.1)2.3Form of Warrant Agent Agreement (included as Exhibit 4.3 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).2.4Form of Underwriters' Warrant (included as Exhibit 4.4 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 26, 2016, and incorporated herein by reference).4.1Founders Agreement dated June 1, 2011 between Kasbian Nuriel Chirich, Dr. Shai Yarkoni, and Dr. Nadir Askenasy (included as Exhibit 10.1 toour Registration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein byreference).4.2Chairman of the Board Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Kasbian Nuriel Chirich (unofficial Englishtranslation from Hebrew original) (included as Exhibit 10.2 to our Registration Statement on Form F1 as filed with the Securities and ExchangeCommission on July 7, 2016, and incorporated herein by reference).4.3Employment Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Shai Yarkoni (unofficial English translation fromHebrew original) (included as Exhibit 10.3 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).4.4Employment Agreement dated October 14, 2015 between Cellect Biotechnology Ltd. and Ronen Twito (included as Exhibit 10.4 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.5Consulting Agreement dated April 30, 2013 between Cellect Biotechnology Ltd. and Dr. Nadir Askenasy (unofficial English translation fromHebrew original) (included as Exhibit 10.5 to our Registration Statement on Form F1 as filed with the Securities and Exchange Commission onJuly 7, 2016, and incorporated herein by reference).1114.6Cellect Biotechnology Ltd. 2014 Global Incentive Option Scheme (included as Exhibit 10.6 to our Registration Statement on Form F1 as filed withthe Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.7Joint Product Development Agreement dated June 17, 2015 between Cellect Biotechnology Ltd. and Entegris Inc (included as Exhibit 10.7 to ourRegistration Statement on Form F1 as filed with the Securities and Exchange Commission on July 7, 2016, and incorporated herein by reference).4.8Form of Underwriting Agreement (included as Exhibit 1.1 to our Registration Statement on Form F1/A as filed with the Securities and ExchangeCommission on July 22, 2016, and incorporated herein by reference).8.1Subsidiaries of Cellect Biotechnology Ltd. (included as Exhibit 21.1 to our Registration Statement on Form F1 as filed with the Securities andExchange Commission on July 7, 2016, and incorporated herein by reference).12.1Certification of the Chief Executive Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.12.2Certification of the Chief Financial Officer pursuant to rule 13a14(a) of the Securities Exchange Act of 1934.13.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, furnished herewith.13.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, furnished herewith.15.1Consent of Kost Forer Gabbay & Kasierer, Certified Public Accountant (Isr.), a member of Ernst & Young Israel.SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and authorized the undersigned tosign this annual report on Form 20F filed on its behalf.CELLECT BIOTECHNOLOGY LTD.By:/s/ Dr. Shai YarkoniDr. Shai YarkoniChief Executive OfficerDate: March 23, 2017112CELLECT BIOTHECHNOLOGY LTD(FORMERLY CELLECT BIOMED LTD.)CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016NIS IN THOUSANDSINDEXPageReport of Independent Registered Public Accounting FirmF2Consolidated Balance SheetsF3Consolidated Statements of Comprehensive Loss F4Statements of Changes in Equity F5Consolidated Statements of Cash FlowsF6 – F7Notes to Consolidated Financial StatementsF8 – F32 Kost Forer Gabbay & Kasierer3 Aminadav St.TelAviv 6706703, IsraelTel: +97236232525Fax: +97235622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders andBoard of Directors ofCellect Biothechnology Ltd.We have audited the accompanying consolidated balance sheets of Cellect Biotechnology Ltd. (the "Company") and its subsidiaries as of December 31, 2016and 2015 and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financialposition of the Company and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations, changes in equity and cash flows foreach of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.Without qualifying our above opinion, we draw attention to Note 1b to the consolidated financial statements. As discussed in Note 1b to the financialstatements, the Company incurred negative cash flow from operations totaling NIS 14,412 and losses totaling NIS 15,317 thousand during the year endedDecember 31, 2016, has not yet generated revenues from its operations and is dependent on external sources for financing its operations. These factors, amongothers discussed in Note 1b, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters arediscussed in Note 1b. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assetsamounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.TelAviv, IsraelKOST FORER GABBAY & KASIERERMarch 22, 2017A Member of Ernst & Young GlobalF2CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED BALANCE SHEETSIn thousands, except number of shares dataConveniencetranslation(Note 2d)December 31,December 31,201520162016NoteN I SU.S. dollarsCURRENT ASSETS:Cash and cash equivalents63,9136,2791,633Sort term deposits719,6605,113Marketable securities87,8294,9971,300Other receivables94121,46138012,15432,3978,426LONGTERM ASSETS:Restricted cash2014036Property, plant and equipment, net101,1871,3733571,2071,51339313,36133,9108,819CURRENT LIABILITIES:Trade payables114661,401364Other payables122,3942,0845422,8603,485906NON CURRENT LIABILITIES:Traded warrants to ADS1,938504SHAREHOLDERS' EQUITY :13Ordinary shares of no par value:Authorized: 500,000,000 shares at December 31, 2015, and 2016, Issued andoutstanding: 75,949,888*) and 107,583,485*) shares as of December 31, 2015 and2016, respectively.Additional Paid In Capital36,72567,41417,533Sharebased payments143,6036,2171,617Treasury shares(9,425)(9,425)(2,451)Accumulated deficit(20,402)(35,719)(9,290)10,50128,4877,40913,36133,9108,819*)Net of 2,686,693 treasury shares of the Company, held by the Company.The accompanying notes are an integral part of the consolidated financial statements.F3CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016NoteN I SU.S. dollarsResearch and development expenses17a3,0585,8938,2562,147General and administrative expenses17b2,4914,2047,9682,072Other Income(280)(73)Total operating expenses5,54910,09715,9444,146Operating loss5,54910,09715,9444,146Financial income(37)(4)(660)(172)Financial expenses3979339Total Comprehensive loss5,55110,17215,3173,983Loss per shareBasic and diluted loss per share180.0840.1370.1680.044Weighted average number of shares outstanding used tocompute basic and diluted loss per share65,968,76874,475,10991,128,51691,128,516The accompanying notes are an integral part of the consolidated financial statements.F4CELLECT BIOTECHNOLOGY LTD.STATEMENTS OF CHANGES IN EQUITYIn thousands, except number of shares dataSharecapitalSharepremiumTreasurysharesSharebasedpaymentsAccumulateddeficitTotal equityN I SBalance as of January 1, 201416,764(9,425)583(4,679)3,243Issuance of share capital net of issue costs (see Note13a1)14,14032914,469Sharebased payment798798Total comprehensive loss(5,551)(5,551)Balance as of December 31, 201430,904(9,425)1,710(10,230)12,959Issuance of share capital net of issue costs (see Note13a2)5,5966966,292Sharebased payment1,3181,318Exercise of share options225(121)104Total comprehensive loss(10,172)(10,172)Balance as of December 31, 201536,725(9,425)3,603(20,402)10,501Issuance of share capital net of issue costs (see Note13a4, 5)30,6821,06231,744Sharebased payment1,5521,552Exercise of share options77Total comprehensive loss(15,317)(15,317)Balance as of December 31, 201667,414(9,425)6,217(35,719)28,487Balance as of December 31, 2016 conveniencetranslation in U.S. dollars (see Note 2d)17,533(2,451)1,617(9,290)7,409The accompanying notes are an integral part of the consolidated financial statements.F5CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Operating Activities:Total Comprehensive Loss(5,551)(10,172)(15,317)(3,983)Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to profit and loss items:Net financing expenses36913435Gain from revaluation of financial assets presented at fair value through profitand loss(35)(2)(106)(28)Depreciation and capital loss from sale of property, plant and equipment247135091Interest and indexation differences in respect of loans from shareholder, net21Sharebased payment7981,3181,552404Changes in fair value of traded warrants to ADS(1,235)(321)8111,456695181Changes in asset and liability items:Decrease (increase) in other receivables104(328)(1,049)(273)Increase in other payables2351,3331,2593273391,00521054Cash paid and received during the year for:Interest received2121Net cash used in operating activities(4,399)(7,710)(14,412)(3,748)Cash Flows from Investing Activities:Proceeds received from the sale of fixed assets779525Short term deposits(19,530)(5,079)Restricted deposit(120)(31)Investment in marketable securities measured at fair value through profit andloss(14,022)Sales of Marketable securities measured at fair value through profit and loss2,8003,4302,808730Purchase of property, plant and equipment(229)(332)(1,265)(329)Net cash provided by (used in) investing activities(11,451)3,175(18,012)(4,684)The accompanying notes are an integral part of the consolidated financial statements.F6CELLECT BIOTECHNOLOGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except number of shares dataConveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsCash Flows from Financing Activities:Exercise of share options10472Repayment of loans from shareholders(536)Issuance of share capital, net of issue costs (see note 13)14,4696,29234,9179,081Net cash provided by financing activities13,9336,39634,9249,083Exchange differences on balances of cash and cash equivalents(5)(70)(134)(35)Increase (decrease) in cash and cash equivalents(1,922)1,7912,366616Balance of cash and cash equivalents at the beginning of the year4,0442,1223,9131,018Balance of cash and cash equivalents at the end of the year2,1223,9136,2791,634(a) Noncash activities:Purchase of property, plant and equipment6925815The accompanying notes are an integral part of the financial statements.F7CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 1:GENERALa.Cellect Biotechnology Ltd. (formerly Cellect Biomed Ltd.) (the "Company" or "Cellect") is a public company whose shares are listed for tradingon the Tel Aviv Stock Exchange (the "TASE") and whose American Depository Shares (“ADSs”), each representing twenty of the Company’sordinary shares, and traded warrants to ADS are listed for trading on the NASDAQ (see also note B.5). Cellect and its subsidiary, CellectBiotherapeutics Ltd. (the "Subsidiary") are engaged in the development of an innovative, unique technology that enables the biologicalfiltering and commercialization of stem cells.b.Going ConcernThe accompanying financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assumingthat the Company will continue to operate as a going concern. During the year ended December 31, 2016, the Company incurred a net loss ofNIS 15,317 ($3,983) and had negative cash flows from operating activities of NIS 14,412 ($3,748). In addition, the Company had an accumulateddeficit of NIS 35,719 ($9,290) at December 31, 2016. The Company's management plans to seek additional equity financing. The Companybelieves its current capital resources are sufficient to support its operations through the end of the first quarter of 2018.The Company’s activities since inception have consisted of raising capital and performing research and development activities. As ofDecember 31, 2016, principal commercial operations have not commenced. Successful completion of the Company’s development programsand, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things, its ability toobtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a customer base, attract, retainand motivate qualified personnel and develop strategic alliances. Although management believes that the Company will be able tosuccessfully fund its operations, there can be no assurance that the Company will be able to do so or that the Company will ever operateprofitably.The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute itsbusiness plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatoryactivities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable future. Therecan be no assurance that these activities will be successful. If the Company is not successful in these activities it could delay, limit, reduce orterminate preclinical studies, clinical trials or other research and development activities. To fund its capital needs, the Company plans to raisefunds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing arrangements, and in thelong term, from the proceeds from sales. Additional funds may not be available when the Company needs them, on terms that are acceptable toit, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do notinclude any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company was unable tocontinue as a going concern.F8CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwisestated.a.Basis of presentation of the financial statements:These financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").The Company's financial statements have been prepared on a cost basis, except for marketable securities and liability related to warrants thatare measured at fair value through profit or loss. The Company has elected to present profit or loss items using the "function of expense"method. The Company's operating cycle is one year.b.Consolidated financial statements:The consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control existswhen the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation of thefinancial statements commences on the date on which control is obtained and ends when such control ceases.The financial statements of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidatedfinancial statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances andtransactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.c.Functional currency, reporting currency and foreign currency:1.Functional currency and reporting currency:The reporting currency of the financial statements is the New Israeli Shekel (“NIS”).The Company determines the functional currency of each company in the Group, used to measure the financial condition and resultsof operations of each company separately.2.Transactions, assets and liabilities in foreign currency:Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction.After initial recognition, monetary assets and liabilities denominated in foreign currency are translated on each reporting date into thefunctional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.d.Convenience translation into U.S. dollars:The financial statements as of December 31, 2016 and for the year then ended have been translated into U.S. dollars using the exchange rate ofthe U.S. dollar as of December 31, 2016 (U.S. $1.00 = NIS 3.845). The translation was made solely for convenience purposes.The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable indollars or convertible into dollars, unless otherwise indicated.F9CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents are considered as highly liquid investments, including unrestricted shortterm bank deposits with an original maturity ofthree months or less from the date of acquisition.f.Taxes on income:Tax results with respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in othercomprehensive income or equity.Current taxesThe liability for current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date, aswell as adjustments required in connection with the taxes payable in respect of prior years.g.Property, plant and equipment:Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.Depreciation is calculated on a straightline basis over the useful life of the assets at annual rates as follows:%Computers and Electronic Equipment33Laboratory and clinical experiments equipment15Vehicles20Leasehold improvements(*Office furniture and equipment7 15(* Leasehold improvements are depreciated on a straightline basis over the lease term or the estimated useful life of the improvement,according to the shorter period.The useful life, depreciation method and residual value of an asset are reviewed at least each yearend and any changes are accounted forprospectively as a change in accounting estimate.Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.An asset is derecognized upon disposal or when no further economic benefits are expected from its use.During 2016, the Company sold its sole vehicle and as of December 31, 2016 the Company doesn’t own any vehicles in its possession.h.Research and development expenses, net of participations:Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project orfrom the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; theCompany's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability ofadequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably theexpenditure attributable to the intangible asset during its development.F10CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Financial instruments:1.Financial assets:Financial assets within the scope of International Accounting Standard (IAS) 39, "Financial Instruments: Recognition andMeasurement" ("IAS 39") are initially recognized at fair value plus directly attributable transaction costs, except for financial assetsmeasured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.After initial recognition, the accounting treatment of financial assets is based on their classification as follows:Financial assets at fair value through profit or lossThis category includes financial assets designated upon initial recognition at fair value through profit or loss.Loans and receivablesLoans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initialrecognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effectiveinterest method and less any impairment losses. Shortterm borrowings are measured based on their terms, normally at face value.2.Financial liabilities:Financial liabilities within the scope of IAS 39 are initially measured at fair value.After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:Financial liabilities measured at amortized cost:After initial recognition, loans and other liabilities are measured according to their terms at amortized cost using the effective interestmethod, taking into account directly attributable transaction costs.3.Offsetting financial instruments:Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is alegally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the assetand settle the liability simultaneously.j.Onerous contractThe Company recognized a net provision for contractual future lease payment amounts greater than the future economic benefits expectedfrom leased assets (expected income from sublease of the assets) as a result of discontinuing use of the assets, departure and transfer ofactivities carried out in them. This provision is presented at present value.F11CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)k.Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date.Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in theabsence of a principal market, in the most advantageous market.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability,assuming that market participants act in their economic best interest.Fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using theasset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fairvalue, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchybased on the lowest level input that is significant to the entire fair value measurement:Level 1quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2inputs other than quoted prices included within Level 1 that are observable directly or indirectly.Level 3inputs that are not based on observable market data (valuation techniques which use inputs that are not based onobservable market data).l.Treasury sharesl.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Globall.Treasury sharesThe Company's shares held by the Company are measured at their acquisition cost and are presented as an offset against the Company'sequity. Any gain or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.m.Employee benefit liabilities:The Group has several employee benefit plans:1.Shortterm employment benefits:Shortterm employee benefits are expected to be settled in full less than 12 months after the end of the annual reporting period inwhich the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation andsocial security contributions and are recognized as expenses as the services are rendered. The liability for a cash bonus or profitparticipating plan is recognized when the Company has a legal or constructive obligation to pay the said amount in respect of pastservices rendered by the employee and the amount may be reliably estimated.F12CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)2.Postemployment benefits:Post employment benefit plans are normally funded by contributions to insurance companies and are classified as definedcontribution plans.The Company has defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, into which the Company paysfixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay, even if thefund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense whencontributed concurrently with performance of the employee's services.n.Sharebased payment transactions:From time to time the Company grants to its employees and other service providers remuneration in the form of equitysettled sharebasedinstruments, such as options to purchase ordinary shares.Equitysettled transactions:The cost of equitysettled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fairvalue is determined using an acceptable option pricing model.As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration forequity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured,they are measured by reference to the fair value of the equity instruments granted.The cost of equitysettled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period inwhich the performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled to theaward (the "Vesting Period").No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/orperformance) are satisfied.When the Company changes the conditions of the award of equitysettled instruments, an additional expense is recognized beyond theoriginal expense, calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other serviceprovider according to the fair value on date of change.F13CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 2:SIGNIFICANT ACCOUNTING POLICIES (cont.)Cancellation of the award of equitysettled instruments is accounted for as having vested at the cancellation date and the expense not yetrecognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended as analternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original award, as describedabove.o.Loss per share:Loss per share is calculated by dividing the net loss attributable to Company shareholders by the weighted number of outstanding ordinaryshares during the period. Potential ordinary shares are only included in the computation of diluted loss per share when their conversionincreases loss per share or decreases income per share. Potential ordinary shares that are converted during the period are included in dilutedloss per share only until the conversion date and from that date in basic loss per share.NOTE 3:SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTSEstimates and assumptions:The preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application of theaccounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are reported in the period of thechange in estimate.The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by theCompany that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.•Determining the fair value of sharebased transactionsThe fair value of share based transactions is determined upon initial recognition using acceptable option pricing models. The model is basedon pershare price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and riskfreeinterest rate.NOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTIONa.IFRS 15, "Revenue from Contracts with Customers":IFRS 15 ("the new Standard") was issued by the IASB in May 2014.The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15,"Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC31, "Revenue BarterTransactions Involving Advertising Services".F14CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)The new Standard introduces a fivestep model that will apply to revenue earned from contracts with customers:Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.Step 2: Identify the separate performance obligations in the contractStep 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to thecontract, noncash consideration and any consideration payable to the customer.Step 4: Allocate the transaction price to the separate performance obligations on a relative standalone selling price basis using observableinformation, if it is available, or using estimates and assessments.Step 5: Recognize revenue when a performance obligationis satisfied, either at a point in time or over time.The new Standard is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Companydoes not intend to adopt IFRS 15 early.The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will beapplied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, theCompany will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retainedearnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits fullretrospective adoption with certain reliefs.b.IFRS 9, "Financial Instruments":In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "FinancialInstruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies toall assets in the scope of IAS 39.According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments aremeasured at amortized cost only if both of the following conditions are met:The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.F15CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and intereston the principal amount outstanding.IFRS 9 also includes a new model for measurement of impairment of financial assets.Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction betweendebt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through othercomprehensive income.Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit orloss or in other comprehensive income (loss), in accordance with the election by the Company on an instrumentbyinstrument basis. If equityinstruments are held for trading, they should be measured at fair value through profit or loss.According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value optionhas not been elected.According to IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should be presented inother comprehensive income. All other changes in fair value should be presented in profit or loss.IFRS 9 also prescribes new hedge accounting requirements.IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.The Company is evaluating the possible impact of the adoption of IFRS 9 but is presently unable to assess its effect, if any, on the financialstatements.c.Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", (the "Amendments") which require additional disclosuresregarding financial liabilities. The Amendments require disclosure of the changes between the opening balance and the closing balance offinancial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changesin foreign exchange rates and changes in fair value.The Amendments are effective for annual periods beginning on or after January 1, 2017. Comparative information for periods prior to theeffective date of the Amendments is not required. Early application is permitted.The Company will include the necessary disclosures in the financial statements when applicable.F16CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 4:DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)d.IFRS 16, "Leases":In January 2016, the IASB issued IFRS 16, "Leases" (the "New Standard"). According to the New Standard, a lease is a contract, or part of acontract, that conveys the right to use an asset for a period of time in exchange for consideration.According to the New Standard:·Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases(except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".·Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding rightofuseasset. Lessees will also recognize interest and depreciation expenses separately.·Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based onperformance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized asincome by the lessors as earned.·In the event of change in variable lease payments that are CPIlinked, lessees are required to remeasure the lease liability and the effectof the remeasurement is an adjustment to the carrying amount of the rightofuse asset.·The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the currentaccounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with aterm of up to one year.·The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or anoperating lease.The New Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided that IFRS 15,"Revenue from Contracts with Customers", is applied concurrently.For leases existing at the date of transition, the New Standard permits lessees to use either a full retrospective approach, or a modifiedretrospective approach, with certain transition relief whereby restatement of comparative data is not required.The Company is evaluating the possible impact of the adoption of IFRS 16 but is presently unable to assess its effect, if any, on the financialstatements.F17CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 5:MERGER WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")The merger between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enablingselection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the agreement, 44,887,373 ordinary shares,NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued to shareholders of the Subsidiary, as well as an aggregate of568,395 options (not listed for trading), each exercisable for one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entireshare capital of the Subsidiaryincluding all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a whollyowned subsidiary of the Company.Out of the options granted, an amount of 227,358 Series 1 unlisted options – exercisable until April 30, 2018, at an exercise price of NIS 1.00 per option.NOTE 6: CASH AND CASH EQUIVALENTSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsCash for immediate withdrawal3,9136,2791,6333,9136,2791,633NOTE 7:SHORT TERM DEPOSITSConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsShort Term Deposits19,6605,11319,6605,113F18CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 8:MARKETABLE SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSSMarketable securities measured at fair value through profit and loss. As of December 31, 2016, the marketable securities are comprised of NIS mutualfunds that follow changes in short term Bank of Israel interest.NOTE 9:OTHER RECEIVABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsOther receivables5113Government authorities187611159Prepaid expenses2257992084121,461380NOTE 10:PROPERTY, PLANT AND EQUIPMENT, NETBalance as of December 31, 2016:LaboratoryequipmentLeaseholdimprovementsVehiclesOffice furniture andequipmentComputersTotalCostBalance as of January 1, 2016687244176361491,292Additions during the year31912811183641Deductions during the year(176)(176)Balance as of December 31, 201610063721472321,757Accumulated DepreciationBalance as of January 1, 20161237848105Additions during the year:128116251062341Deductions during the year(62)(62)Balance as of December 31, 201614011618110384Depreciated cost as of December 31, 20168662561291221,373Depreciated cost as of December 31, 2016 (convenience translation into U.S. dollars (Note2d))225673432357F19CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 10:PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)Balance as of December 31, 2015:LaboratoryequipmentLeaseholdimprovements*)VehiclesOfficefurnitureandequipmentComputersTotalCostBalance as of January 1, 20151761676268Additions during the year:68724420731,024Balance as of December 31, 2015687244176361491,292Accumulated DepreciationBalance as of January 1, 20151161734Additions during the year:Depreciation12*)2623171Balance as of December 31, 20151237848105Depreciated cost as of December 31, 2015675244139281011,187*)The Company entered into new offices in early January 2016, and did not record depreciation expenses of the leasehold improvements during2015.NOTE 11:TRADE PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsService providers1821,343349Notes payable28458154661,401364F20CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 12:OTHER PAYABLESConveniencetranslation(Note 2d)December 31,December 31,201520162016N I SU.S. dollarsEmployees and payroll accruals *)6631,677436Accrued expenses985393102Payables for acquisition of property, plant and equipment692Other541442,3942,084542*)Balance includes related parties (The Company's CEO and the Chairman of the Board of Directors).NOTE 13:EQUITYa.Changes in share capital:Number ofSharesBalance as of January 1, 201571,085,351Exercise of share options– see note 8 below341,037Issuance of shares – see note 7 below4,523,500Balance as of December 31, 2015*)75,949,888Issuance of shares in private placement5,783,437Exercise of share options4,000Issuance of shares in an IPO25,846,160Balance as of December 31, 2016*)107,583,485*)Net of 2,686,693 treasury shares of the Company, held by the Company.1.On April 22, 2014, the Company's board of directors approved the Company entering into an investment agreement (the “PrivatePlacement”) with Michael Ilan Management and Investments Ltd., a private company whollyowned by Mr. Michael Ilan (the"Investor"), whereby the Investor agreed to invest the sum of NIS 15,000 according to a premoney company valuation of NIS 60,000,for consideration of 14,217,070 ordinary shares of the Company, representing, after issuance, 20% of the Company's issued andoutstanding capital and 19.84% on a fullydiluted basis. On May 13, 2014 the Private Placement was completed.F21CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)Additionally, the Company entered into an agreement with a broker (the "Broker"), pursuant to which the Company agreed that at theclosing of the Private Placement, the Broker would be entitled to cash compensation of 3% of the amount of the investment (NIS 450),plus options that are exercisable over three years from their grant date, in an amount equal to 3% of the share capital to be issued toinvestor. Following closing, a totalof 426,512 options, exercisable into 426,512 ordinary shares, were granted to the Broker. The totalbenefit in respect of the grant calculated at the grant date was NIS 329.2.On April 20, 2015, the Company published an offering under the shelf registration statement and prospectus dated November 25, 2014,pursuant to which the public was offered up to 4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000ordinary shares of the Company. The Company exercised its right for an overallotment not to exceed 15% of the total securitiesoffered through the offering, such that in total, the Company issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of theCompany. The total gross proceeds received by the Company in respect of the securities offered to the public according to the shelfoffering totaled NIS 6,604 (proceeds net of issuance costs amounted to NIS 6,292).Following the offering, the CEO and additional officers became entitled to a bonus, in accordance with the Company's compensationpolicy, totaling NIS 172. The Company accrued this amount as an expense in the second quarter of 2015. Pursuant to the issuance ofthe share capital, the Company granted 200,000 options (Series 1) exercisable for 200,000 ordinary shares of the Company to a broker,representing 0.26% of the Company's issued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.85 per share,in consideration for NIS 32, which was recorded in the second quarter of 2015, as deduction from the share premium.3.During June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company, in consideration for a total of NIS 104.4.In February 2016, the Company completed a private placement of shares and warrants for a total of approximately NIS 8,000 and issued5,783,437 ordinary shares as well as 1,927,801 unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS 2.1 perwarrant. Participants in the private placement also included related parties and an officer of the Company. On May 16, 2016 theCompany’s shareholders, at a general meeting approved the participation of the controlling shareholder and Chairman of the Board,Mr. Nuriel Kasbian Chirich, in the private placement, and accordingly he was allotted 287,769 shares and 95,923 unlisted warrants ofthe Company at the same terms of issue as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at general meetingof the Company's shareholders approved the extension of the exercise period of the warrants until March 7, 2018.5.On July 28, 2016 the Company completed a US initial public offering (the “IPO”) on NASDAQ in which it raised gross proceeds of NIS32,107, (NIS 25,820 net of all issuance costs, including sharebased awards granted), including the Underwriters remuneration, throughan issuance of ADS and warrants to ADS. An amount of NIS 23,269 out of the consideration was ascribed to net the ADS andclassified as equity component, while an amount of NIS 3,173 was ascribed to the fair value of the Traded Warrants to ADS and wasclassified as a liability. Issuance costs amounting to NIS 622 associated with the issuance of the Traded Warrants to ADS, have beenrecognized as finance expenses in the operation report.F22CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 13:EQUITY (Cont.)The 969,231 Traded Warrants to ADS are exercisable at a 1:1 ratio, for a period of five years at an exercise price of US$ 7.5 per warrant.Since the warrants' exercise price is in US dollars, which is not the Company's functional currency, the Traded Warrants to ADS wereclassified as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS 39.Pursuant to the Underwriters agreement, the Underwriters purchased 1,292,308 ADS as well as 969,231 Traded Warrants to ADS at 1:1ratio, at a price to the public of US$ 6.5 per unit. Furthermore, the Company granted the Underwriters an option, exercisable within 45days from the date of signing the underwriting agreement, to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADSand/or an additional 145,385 Traded Warrants to ADS at a 1:1 ratio, at the same terms as the warrants issued to the public, at a price ofUS$ 0.007 per warrant, to cover overallotments, if any. The Underwriters purchased 65,890 Traded Warrants to ADS. The option to theUnderwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the totalconsideration as issuance cost. Furthermore, the Company granted the Underwriters 77,538 NonTradable Warrants to ADS at anexercise price of $ 8.8 per warrant convertible at a 1:1 ratio and is exercisable for a period of four years. The Underwriters' NonTradedWarrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration asissuance cost.b.Rights related to ordinary sharesAll ordinary shares shall have equal rights and each ordinary share shall entitle the holder the following rights:1.The right to receive notices of any general meeting of shareholders, to participate in meetings and vote on any matter raised in themeeting. Each ordinary share entitles its holder to one vote.2.The right to participate in any distribution by the Company to its shareholders and receive dividends and / or bonus shares, ifdistributed in accordance with the Company articles of association.3.The right to participate at the time of liquidation of the Company, in the distribution of the Company's assets permitted to bedistributed in proportion to the number of shares allocated and the degree of repayment by the shareholders, if not fully paid, andsubject to the provisions of the articles of association of the Company and without prejudice to existing rights of shareholders of anykind.F23CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATIONa.In February 2014, the Company's Board of Directors adopted an Employee Shares Incentive Plan (the "2014 Plan"). Under the 2014 Plan,options may be granted to employees, officers, directors, consultants, advisers and service providers of the Company.b.Details on share options granted are provided below:1.On August 26, 2015, the Company's shareholders, at a general shareholders' meeting approved a grant to each of the Company'sdirectors, including the external directors, of 72,000 unlisted options, exercisable for 72,000 ordinary shares, no par value, and in total,504,000 unlisted options exercisable for 504,000 ordinary shares, no par value, of the Company, representing 0.6% of the Company'sissued and outstanding capital on a fullydiluted basis, at an exercise price of NIS 1.90 per share.On October 19, 2015, and on November 28, 2016 the board of directors approved an increase to the unlisted option pool of 4,087,903and 1,000,000 options respectively. As a result, the Company has a total of 8,500,000 unlisted options.2.On October 15, 2015, the Company appointed Ronen Twito as the Deputy Chief Executive Officer and Chief Financial Officer (the"Deputy CEO and CFO"), effective November 3, 2015. On November 23, 2015, the Company's shareholders, at a general meeting ofshareholders approved the Deputy CEO and CFO terms of service, including a grant of options, which is an exception from theCompany's compensation policy, as further described below. The terms of service included among others, a grant of 2,658,246 options,exercisable for 2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.28 per share, representing 3.5% ofthe Company's issued and outstanding capital. The total benefit in respect of the grant calculated at the grant date was NIS 3,033. Theterms of service also included a bonus plan based on, among others, future capital raising by the Company.Following the attainment of targets in 2016, the Company included provision for grant of five monthly salaries. On October 27, 2016,the Deputy CEO and CFO resigned. 1,550,643 options that were not vested were forfeited.3.On November 29, 2015, the Company's board of directors approved the grant of 80,000 unlisted options to the Company's VP Researchand Development exercisable for 80,000 ordinary shares. The fair value of the options at the grant in accordance with the BlackScholes model estimated a total of about NIS 81, that will be recognized as an expense over the Vesting Period of the options (threeyears).4.On March 31, 2016, the Company's board of directors approved the grant of 600,000 unlisted options to a consultant exercisable for600,000 ordinary shares at an exercise price of NIS 2.1 each. The options vest each quarter over a period of 24 months, pursuant to theCompany's option plan. On September 1, 2016 the agreement between the Company and the consultant was terminated. According tothe termination arrangement, 300,000 options were vested, while the other 300,000 were forfeited.5.On May 31, 2016 the Board of Directors approved an allotment of 70,000 unlisted options to the Company's VP Research andDevelopment, Dr. Amotz Nechushtan, at an exercise price of NIS 1.68 per option. The options are exercisable quarterly over a vestingperiod of three years, in accordance with the Company's share option plan.F24CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)6.On October 27, 2016, the Company appointed new CFO, effective January 1, 2017. The terms of service included among others, a grantof 1,936,503 options, exercisable for 1,936,503 ordinary shares, no par value, of the Company at an exercise price of NIS 0.819 per share.The options shall vest over a period of 36 months, with a three months cliff. The total benefit in respect of the grant calculated at thegrant date was NIS 1,373, to be recognized over the vesting term.c.Expense recognized in the financial statements:The expense that was recognized for services received from employees, directors and service providers is as follows:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSharebased payment settled by equity instruments7981,3181,552404Total sharebased compensation7981,3181,552404d.Activity during the year:The table below includes the number of share options, and the weighted average of their exercise prices:20152016Number ofoptionsWeightedAverageExercisepriceNumber ofoptionsWeightedAverageExercisepriceNISNISOutstanding at beginning of year2,994,9071.24505,764,8661.37Options exercised for shares(341,037)0.3Options forfeited(131,250)1.4(2,054,396)1.43Option Expired(337,000)1.42Granted3,242,2461.3822,606,5031.14Outstanding at end of year5,764,8661.3745,979,9731.25F25CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 14:SHAREBASED COMPENSATION (Cont.)e.The following table summarize information about the Company's outstanding and exercisable options granted to employees and consultants asof December 31, 2016:Exercise price(Range)Optionsoutstandingas ofDecember 31,2016WeightedaverageremainingcontractualtermOptionsexercisable as of December 31,2016Weighted average remainingcontractualterm(years)(years)0.001 1.353,451,4628.91,012,7478.71.35 1.81,796,5117.71,413,1797.71.8 2.1732,0005.4480,0003.75,979,9737.32,905,9266.7f.Measuring the fair value of share options settled by equity instruments:The Company shares data which is useful for measuring the fair value of the options under the BlackScholes model, for the years endedDecember 31, 2015 and 2016, is as follows:20152016Dividend yield (%)00Expected volatility of the share prices (%)85.8%87.5%84.05%91.58%Riskfree interest rate (%)2.26%2.33%1.04%2.10Expected life of share options (years)10410According to the data above, the fair value of options granted in the years 20152016 was set to NIS 5,569 at the grant date.NOTE 15:TAXES ON INCOMEa.Corporate tax rates in Israel:The Israeli corporate income tax rate was 25% in 2016 and 26.5% in 2015 and 2014.In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, whichincludes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policyfor the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017and to 23% effective from January 1, 2018.b.Final tax assessments:The Company received final tax assessments through tax years 2010. Cellect has no final tax assessments since its inception (year 2011).c.Net operating carryforwards losses for tax purposes and other temporary differences:As of December 31, 2016, the Company had carryforward operating losses amounting to approximately NIS 23,478.F26CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 15:TAXES ON INCOME (Cont.)The Company did not recognize deferred tax assets for carryforward operating and capital losses and other temporary differences becausetheir utilization in the foreseeable future is not probable.NOTE 16:CONTINGENT LIABILITIES AND COMMITMENTSa.CommitmentsAccording to the terms of the agreement dated July 7, 2013, the Chairman of the board of directors will be employed on a halftimebasis, and will be entitled to a monthly salary as follows: until a cumulative investment of total of $2,000 is raised – NIS 10; when aninvestment between $2,000 to $4,000 is raised – NIS 15 and once a cumulative total investment of more than $4,000 is raised – NIS 20.He will also be entitled to a bonus for capital raised by the Company, whereby for the first $2,000 raised, he will be entitled to a bonusof 0.75% of the amount raised, and for amounts exceeding $2,000, he will be entitled to a bonus of 1% of the amount raised (exceedingthe first $2,000). The bonus in respect of the capital amounts raised is limited to NIS 200.Further to the investment described in Note 13a.1, during 2014, the Chairman of the board of directors received a bonus of NIS 166 and34 NIS for the years 2014 and 2015, respectively, as a result of capital raised. In July 2016, as part of the terms of agreement, it wasdecided that the Chairman of the board of directors will be employed on a thirdtime basis, thus updating his monthly salary to NIS 30.In addition, in event of an IPO, the chairman of the board's salary would be increased to NIS 35. In August 2016, after the IPO, thesalary of the Chairman of the board was increased accordingly. On July 24, 2016 the Company's shareholders, at a general meeting ofshareholders approved the updated terms as above.Following the attainment of targets in 2016, the Company included provision for grant to the Chairman of the board of directors at theamount of NIS 100.2.Under the terms of the agreement dated July 7, 2013, the Company's CEO is entitled, through a company he owns, to monthlycompensation of NIS 58.5, and after an investment of $2,000 is raised, the monthly compensation will increase by 10%, and willincrease by a further 10% when an additional cumulative total investment of $2,000 will be raised. Commencing in January 2014, theCEO was paid as an employee rather than a contractor, with the Company's expense for his employment remaining unchanged.Following a $15,000 investment in the Company in April 2014, the CEO's monthly gross salary was raised to NIS 54.5. The CEO is alsoentitled to social benefits, car and customary expenses of senior officers in the Company.In addition to the aforementioned compensation, the CEO is entitled to a bonus as follows: for investment of $1,000 – NIS 100, andadditionally, for investments of between $1,000 and $2,000 – 0.75% of the cumulative amount raised; for investments that exceed $2,000– 1% of the amount exceeding $2,000, up to a cumulative oneoff payment of NIS 200.Further to the investment described in Note 13a.1, the CEO received a bonus totaling NIS 166 during 2014. In addition, the CEOreceived a bonus during 2015 in the amount of NIS 100 in respect of his performance in 2014.F27CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 16:CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)On May 6, 2015, the Company's general shareholders' meeting approved the 2015 Bonus Plan of up to five time the CEO's monthlysalary, depending on operational results. Following the attainment of targets in 2015, the CEO received a bonus during 2016 in theamount of NIS 216.On March 31, 2016, the Company's board of directors approved the 2016 Bonus Plan of up to five time the CEO's monthly salary,depending on operational results. Following the attainment of targets in 2016, the Company included provision for grant of five timesthe CEO’s monthly salary in 2016.In July 2016, as part of the terms of agreement, it was decided that the CEO's monthly salary will be updated to NIS 70. On July 24, 2016the Company's general meeting of shareholders approved the updated terms as above.3.On September 1, 2015, the Company signed a new lease agreement for new offices. The aforementioned lease agreement is for aminimum period of 3 years from the date of signing the agreement. Under this agreement, the Company will pay a monthly rental feeplus an administration fee of NIS 32.The Company has entered into operating lease agreements for vehicles. These leases have an average life of three years with nooption to extend the contract. . The company as the right to finish the agrrement before the end of the three years and will have to payan exit fine between one to three mounts of lease. The future minimum monthly lease payments as of December 31, 2016 areapproximately NIS 11.4.On November 23, 2016, the Company signed an agreement with Tel Aviv stock exchange ("TASE") in which TASE participates inpayments to analyst companies who will review the company's result and publish professional analysis.As of December 31, 2016, The Company paid NIS 71 and the Company will pay in the future an amount of NIS 183.b.Liens:The Company provided a NIS 20 restricted bank deposit to secure credit card payments.The Company provided a NIS 120 restricted bank deposit to secure the rent payment.F28CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 17:SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE LOSSa.Research and development expenses:Convenience translation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses1,5552,7393,711966Professional services4007461,044271Patents169326409106Subcontractors (*)146538534139Sharebased payment51252325366R&D related purchases2087701,676435Other research and development costs682516291643,0585,8938,2562,147(*) Reclassified.b.General and administrative expenses:Conveniencetranslation(Note 2d)Year endedDecember 31,Year endedDecember 31,2014201520162016N I SU.S. dollarsSalaries and related expenses8501,0242,994779Directors' fees26935831883Sharebased payment2867951,299338Professional services7621,3672,074539Insurance232314337Travel abroad20112432Office expenses161235466121Other1402015501432,4914,2047,9682,072F29CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 18:LOSS PER SHAREYear ended December 31,201420152016Weighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersWeighted number of sharesNet loss attributed to Company'sshareholdersNISNISNISNumber of shares and loss for thepurpose of calculating basic and dilutedloss per share65,968,768(5,551,000)74,475,109(10,171,980)91,128,516(15,317,501)NOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIESa.Related party balancesConvenience translation(Note 2d)December 31Year endedDecember 31,201520162016KeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesKeymanagementpersonnelOtherrelatedpartiesNISU.S. DollarsOther payables1162743188058320911627431880583209b.The directors and senior managers of the Company are entitled, in addition to salary, to noncash benefits (such as a car, medical insurance,etc.).Benefits for employment of key management personnel (including directors) employed in the Company:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsShortterm employeebenefits (includesCompany's CEO in2014, 2015 and 2016)32,14353,42376,0401,571F30CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 19:BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)c.Benefits for employment of key management personnel (including directors) that are not employed in the Company:Conveniencetranslation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016No. ofpeopleAmountNISNo. ofpeopleAmountNISNo. ofpeopleAmountNISAmountU.S. dollarsKey managementpersonnel andrelated parties35142444Directors' fees524854775513133876279215513133d.Transactions with related parties:Convenience translation(Note 2d)Year ended December 31,Year endedDecember 31,2014201520162016Key management personnelRelated partiesKey management personnelRelated partiesKey management personnelRelated partiesKey managementpersonnelRelatedpartiesResearch anddevelopmentexpenses5331,0237131,4221,0631,544276402General andadministrativeexpenses3167859218112,3171,116603290Financingexpenses228491,8301,6342,2333,3802,660879692e.CommitmentsRegarding commitments with a controlling shareholder, see Note 16.aF31CELLECT BIOTECHNOLOGY LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except number of shares dataNOTE 20:SUBSEQUENT EVENTSa.On October 27, 2016, the Company announced the resignation of the current deputy CEO and CFO, and the appointment of a new CFOcommencing January 1, 2017.b.On January 12, 2017, the Company announced that it had received a formal notice of allowance around a key method of treatment patent(Application No. 13/811,374) from the United States Patent & Trademark Office. The allowed claims relate to the engineering of regulatoryimmune cells with enhanced apoptotic activity to be used for immunomodulation for treating or preventing immune related disorders.c.On January 26, 2017, the Company's board of directors approved the grant of 250,000 and 100,000 options to the company CDO and to the QADirector respectively, exercisable for 250,000 and 100,000 ordinary shares at an exercise price of NIS 0.631 each. The options vest each quarterover a period of 36 months, with clife of 3 and 12 months respectively pursuant to the Company's option plan.d.On February 14, 2017, the Company announced that it will file a petition with the Israeli court and seek the approval of the Companyshareholders to voluntarily delist the Company’s ordinary shares from the TelAviv Stock Exchange (TASE) in accordance with section 350 tothe Israeli Company Law. Should the petition be approved, all shareholders will retain their prorated holdings, as trading will migrate to theNASDAQ Stock Exchange in the US.e.On February 28, 2017, the Company's board of directors approved the grant of 438,000 options to the Company's employees exercisable for438,000 ordinary shares at an exercise price of NIS 0.867 each. 25% of the options will vest after one year and the other 75% will vest eachquarter over a period of 36 months that will start after 1 year from the grant date. In addition, the Company's board of directors approved thegrant of 3,024,040, 1,442,729 and 306,000 options to the Company's CEO, to the Chairman of the board and to three directos respectively. Eachoption is exercisable for 1 ordinary share at an exercise price of NIS 1.2. The grant is subject to the approval of the share holders.F32EX12.1 2 v462334_ex121.htm EXHIBIT 12.1Exhibit 12.1CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Shai Yarkoni, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Shai YarkoniShai YarkoniChief Executive OfficerEX12.2 3 v462334_ex122.htm EXHIBIT 12.2Exhibit 12.2CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)I, Eyal Leibovitz, certify that:1.I have reviewed this Annual Report on Form 20F of Cellect Biotechnology Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a15(e) and 15d15(e)) [language omitted in accordance with Exchange Act Rule 13a14(a)] for the company and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)[paragraph omitted in accordance with Exchange Act Rule 13a14(a)];(c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company'sauditors and the audit committee of the company’s board of directors:(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control overfinancial reporting.Date: March 23, 2017/s/ Eyal LeibovitzEyal LeibovitzChief Financial OfficerEX13.1 4 v462334_ex131.htm EXHIBIT 13.1Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Shai YarkoniName: Shai YarkoniTitle: Chief Executive OfficerEX13.2 5 v462334_ex132.htm EXHIBIT 13.2Exhibit 13.2CERTIFICATION PURSUANT TO18 U.S.C. Section 1350In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2016 (the “Report”) by Cellect Biotechnology Ltd. (the"Company"), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe SarbanesOxley Act of 2002, that, to my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 23, 2017/s/ Eyal LeibovitzName: Eyal LeibovitzTitle: Chief Financial OfficerEX15.1 6 v462334_ex151.htm EXHIBIT 15.1Exhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S8 (Registration No. 333214817), of our report dated March 22, 2017,with respect to the consolidated financial statements of Cellect Biotechnology Ltd. (formerly: Cellect Biomed Ltd.), which appear in this Annual Report on Form 20Ffor the year ended December 31, 2016./s/ Kost Forer Gabbay & Kasierer Tel Aviv, IsraelKOST FORER GABBAY & KASIERERMarch 23, 2017A member of Ernst & Young Global

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